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DISTRIBUTIVE  JUSTICE 


THE  MACMILLAN  COMPANY 

NBW  YORK  •    BOSTON  •    CHICAGO  •   DALLAS 
ATLANTA  •    SAN  FRANCISCO 

MACMILLAN  &  CO.,  Limited 

LONDON  •  BOMBAY  •  CALCUTTA 
MELBOURNE 

THE  RLiCMILLAN  CO.  OF  CANADA,  Ltd. 

TORONTO 


DISTRIBUTIVE  JUSTICE 

The  Right  and  Wrong  of  Our 
Present  Distribution  of  Wealth 


BY 

JOHN  A.  RYAN,  D.D. 

Associate  Professor  of  Political  Science  at  the 
Catholic  University  of  America;  Professor  of 
Economics  at  Trinity  College;  Author  of 
"A  Living  Wage,' '  "Alleged  Socialism  of  the 
Church  Fathers,"  Joint  Author  with  Morris 
Hillquit  of  "Socialism:  Promise  or  Menace?" 


THE   MACMILLAN    COMPANY 
1916 

All  rights  reserved 


Nihil  Obstat. 

BEMIQIU8  LAFORT,  8.  T.  D., 

Censor. 

Imprimatur. 

JOHN  CARDINAL  FARLEY, 
Archbishop  of  New  York. 


•  •  • 
•  •  • 


COPTBIGHT,    1916, 

,Bt  ♦the.  ma^mii^lan  company 

•  ,  ^  dp'aod  eIectro{yitet].,'PiiKlished  November,  1916. 


TO 
ARCHBISHOP  IRELAND 

IN 

Admiration  and  Gratitude 


PREFACE 

Five  of  the  nine  members  of  the  late  Federal  Commis- 
sion on  Industrial  Relations  united  in  the  declaration  that 
the  first  cause  of  industrial  unrest  is,  "  unj.ust  distribution 
of  wealth  and  income."  In  all  probability  this  judgment 
is  shared  by  the  majority  of  the  American  people.  Re- 
garding the  precise  nature  and  extent  of  the  injustice, 
however,  there  is  no  such  preponderance  of  opinion. 
Even  the  makers  of  ethical  and  economic  treatises  fail  to 
give  us  anything  like  uniform  or  definite  pronouncements 
concerning  the  moral  defects  of  the  present  distribution. 
While  the  Socialists  and  the  Single  Taxers  are  sufficiently 
positive  in  their  statements,  they  form  only  a  small  por- 
tion of  the  total  population,  and  include  only  an  insignifi- 
cant fraction  of  the  recognised  authorities  on  either  ethics 
or  economics. 

The  volume  in  hand  represents  an  attempt  to  discuss 
systematically  and  comprehensively  the  justice  of  the 
processes  by  which  the  product  of  industry  is  distributed. 
Inasmuch  as  the  product  is  actually  apportioned  among 
landowners,  capitalists,  business  men,  and  labourers,  the 
moral  aspects  of  the  distribution  are  studied  with  refer- 
ence to  these  four  classes.  While  their  rights  and  obliga- 
tions form  the  main  subject  of  the  book,  the  effort  is  also 
made  to  propose  reforms  that  would  remove  the  principal 
defects  of  the  present  system  and  bring  about  a  larger 
measure  of  justice. 

Many  treatises  have  been  written  concerning  the  moral- 
ity of  one  or  other  element  or  section  of  the  distributive 
process;  for  example,  wages,  interest,  monopoly,  the  land 
question;  but,  so  far  as  the  author  knows,  no  attempt  has 


PREFACE 

hitherto  been  made  to  discuss  the  moral  aspects  of  the  en- 
tire process  in  all  its  parts.  At  least,  no  such  task  has 
been  undertaken  by  any  one  who  believes  that  the  exist- 
ing economic  system  is  not  inherently  unjust.  That  the 
present  essay  in  this  field  falls  far  short  of  adequate 
achievement  the  author  fully  realises,  but  he  is  sustained 
by  the  hope  that  it  will  provoke  discussion,  and  move  some 
more  competent  person  to  till  the  same  field  in  a  more 
thorough  and  fruitful  way. 

John  A.  Ryan. 

The  Catholic  University  of  America, 

Washington,  D.  C,  June  14,  1916. 


CONTENTS 

Preface vii 

Introductory    Chapter:    The    Elements    and    Scope   of    the 

Problem       ........  xiii 

General   References xvii 

SECTION  I 

THE  MORALITY  OF  PRIVATE  LANDOWNERSHIP  AND 

RENT 
chapter  page 

I    The  Landowner's   Share  of  the  National  Product  3 

Economic  Rent  Always  Goes  to  the  Landowner   .     .  4 

Economic   Rent  and   Commercial   Rent 5 

The  Cause  of  Economic  Rent 6 

II    Landownership  in  History 8 

No  Private  Ownership  in  Pre- Agricultural  Conditions  10 

How  the  Change  Probably  Took  Place 12 

Limited   Character  of   Primitive   Common   Ownership  14 

Private  Ownership  General  in  Historical  Times   .     .  15 

Conclusions  from  History 17 

III  The  Arguments  Against  Private  Landownership  .     .  19 

Arguments  by  Socialists 19 

Henry  George's  Attack  on  the  Title  of  First  Occupancy  21 

His  Defence  of  the  Title  of  Labour 24 

The  Right  of  all  Men  to  the  Bounty  of  the  Earth  .     .  30 

The  Alleged  Right  of  the  Community  to  Land  Values  39 

IV  Private  Ownership  the  Best  System  of  Land  Tenure  48 

The   Socialist    Proposals    Impracticable 48 

Inferiority   of   the   Single  Tax   System 51 


CONTENTS 
CHAPTER  PAGE 

V    Private  Landownership  a  Natural  Right   ....  56 
Three  Principal  Kinds  of  Natural  Rights   ....  57 
Private   Landownership   Indirectly   Necessary   for   In- 
dividual Welfare 59 

Excessive    Interpretations    of    the    Right    of    Private 

Landownership        61 

The  Doctrine  of  the  Fathers  and  the  Theologians    .  62 

The  Teaching  of  Pope  Leo  XIII 64 

VI  Limitations  Of  the  Landowner's  Right  to  Rent  .  .  67 
The  Tenant's  Right  to  a  Decent  Livelihood  .  .  .  6g 
The  Labourer's  Claim  Upon  the  Rent 71 

VII    Defects  of  the  Existing  Land  System  .     .     .     .     .74 

Landownership  and  Monopoly 75 

Excessive  Gains  from  Private  Landownership  ...     80 
Exclusion    from   the    Land 90 

VIII    Methods  of  Reforming  Our  Land  System   ....    94 

The   Leasing   System 95 

Public    Agricultural    Lands 97 

Public    Ownership    of    Urban    Land 98 

Appropriating  Future  Increases  of  Land  Value  .     .     .  100 

Some  Objections  to  the  Increment  Tax 102 

The  Morality  of  the  Proposal 108 

The  German  and  British  Increment  Taxes   .     .     .     .114 

Transferring  Other  Taxes  to  Land 117 

The   Morality  of   the   Plan 120 

Amount  of  Taxes  Practically  Transferable  ....  122 

The  Social  Benefits  of  the  Plan 127 

A  Supertax  on  Large  Holdings 130 

References  on  Section  I 133 

SECTION  II 
THE  MORALITY  OF  PRIVATE  CAPITAL  AND  INTEREST 

IX    The  Nature  and  the  Rate  of  Interest 137 

Meaning  of  Capital  and  Capitalist 137 

Meaning   of    Interest 138 

The    Rate    of    Interest 141 


CONTENTS 
CHAPTER  PAGE 

X    The  Alleged  Right  of  Labour  to  the  Entire  Product 

OF  Industry 145 

The  Labour  Theory  of  Value 146 

The   Right  of   Productivity 149 

XI    The  Socialist   Scheme  of  Industry 152 

Socialist  Inconsistency 152 

Expropriating    the    Capitalists 154 

Inefficient   Industrial   Leadership 158 

Inefficient   Labour 162 

Attempted   Replies   to   Objections 162 

Restricting   Individual   Liberty 168 

XII    Alleged  Intrinsic  Justifications  of  Interest  .     .     .  171 

Attitude  of  the  Church  Toward  Interest  on  Loans  .     .  172 

Interest    on    Productive    Capital 175 

The  Claims  of  Productivity  .     .• 177 

The    Claims   of    Service iSi 

The  Claims  of  Abstinence 182 

XIII  Social  and  Presumptive  Justifications  of  Interest   .  187 

Limitations  of  the  Sacrifice  Principle 187 

The  Value  of  Capital  in  a  No-Interest  Regime  .     ,     .  188 

Whether  the  Present  Rate  of  Interest  is  Necessary   .  191 

Whether  at  Least  two  Per  Cent,  is  Necessary  .     .     .  193 

Whether   any   Interest   is   Necessary    ......  196 

The  State  is  Justified  in  Permitting  Interest  ....  199 

Civil  Authorisation  not  Sufficient  for  Individual  Justi- 
fication       201 

How  the  Interest-Taker  is  Justified 204 

XIV  Co-OPERATION   A  PARTIAL  SOLVENT  OF  CAPITALISM    .       .       .    210 

Reducing  the  Rate  of  Interest 211 

Need  for  a  Wider  Distribution  of  Capital   ....  213 

The   Essence    of    Co-operative    Enterprise    ....  2;i4 

Co-operative    Credit    Societies 216 

Co-operative    Agricultural    Societies 217 

Co-operative  Mercantile   Societies 220 

Co-operation  in   Production 222 

Advantages  and  Prospects  of  Co-operation  ....  228 

References    on    Section    II 233 


CONTENTS 


SECTION  III 
THE  MORAL  ASPECT  OF  PROFITS 

CHAPTER  PAGE 

XV    The  Nature  of  Profits 237 

The  Functions  and  Rewards  of  the  Business  Man  .     .  237 

The  Amount  of   Profits 239 

Profits  in  a  Joint-Stock  Company 241 

XVI    The  Principal  Canons  of  Distributive  Justice  .     .     .  243 

The  Canon  of  Equality 243 

The  Canon  of  Needs 244 

The  Canon  of  Efforts   and   Sacrifice 246 

The  Canon  of  Productivity 247 

The  Canon  of  Scarcity 250 

The  Canon  of  Human  Welfare      V 252 

XVII    Just  Profits  in  Conditions  of  Competition  ....  254 
The  Question    of  Indefinitely  Large  Profits  ....  255 

The  Question  of  Minimum  Profits 258 

The  Question  of  Superfluous   Business   Men     .     .     .  260 

XVIII    The  Moral  Aspect  of  Monopoly 262 

Surplus  and  Excessive  Profits 263 

The  Question  of  Monopolistic  Efficiency 265 

Discriminative  Underselling 267 

Exclusive-Sales    Contracts 270 

Discriminative   Transportation   Arrangements    .     .     .  272 

Natural    Monopolies 273 

Methods  of  Preventing  Monopolistic  Injustice  .     .     .  275 
Legalised  Price  Agreements 277 

XIX    The  Moral  Aspects  of  Stockwatering 279 

Injurious   Effects   of   Stockwatering 281 

The    Moral    Wrong 284 

The  "  Innocent "   Investor 286 

Magnitude  of  Overcapitalisation 288 

XX    The  Legal  Limitation  of  Fortunes 291 

The  Method  of  Direct  Limitation 292 

Limitation  Through  Progressive  Taxation   ....  296 


CONTENTS 

:hapter  pack 

The  Proper  Rate  of  Income  and  Inheritance  Taxes  .  299 
Effectiveness   of    Such   Taxation 300 

XXI    The  Duty  of  Distributing  Superfluous  Wealth  .     .  303 

The  Question  of  Distributing  Some 303 

The  Question  of  Distributing  All 308 

Some    Objections 311 

A  False  Conception  of  Welfare  and  Superfluous  Goods  314 

The  True  Conception  of  Welfare 316 

References  on   Section   III 318 

SECTION  IV 

THE  MORAL  ASPECTS  OF  WAGES 

XXII    Some  Unacceptable  Theories  of  Wage-Justice  .     .     .  323 

I  The   Prevailing-Rate  Theory 323 

Not  in  Harmony  with  Justice 325 

II  Exchange-Equivalence   Theories 326 

The  Rule  of  Equal  Gains 326 

The  Rule  of  Free  Contract 328 

The  Rule  of  Market  Value 330 

The  Mediaeval  Theory 332 

A  Modern  Variation  of  the  Mediaeval  Theory  .  337 

III  Productivity    Theories 340 

Labour's  Right  to  the  Whole  Product  .  .  .  341 
Clark's  Theory  of  Specific  Productivity  .  .  347 
Carver's  Modified  Version  of  Productivity  .     .  351 

XXIII    The  Minimum  of  Justice;  A  Living  Wage  ....  356 

The  Principle  of  Needs 356 

Three  Fundamental  Principles 358 

The   Right  to   a   Decent  Livelihood 360 

The  Claim  to  a  Decent  Livelihood  from  a  Present  Oc- 
cupation     362 

The  Labourer's  Right  to  a  Living  Wage 363 

When  the  Employer  is  Unable  to  Pay  a  Living  Wage  366 

An  Objection  and   Some  Difficulties 370 

The   Family   Living   Wage 373 

Other  Arguments  in  Favour  of  a  Living  Wage  .     .     .  376 
The  Money  Measure  of  a  Living  Wage 378 


CONTENTS 
CHAPTER  PAGE 

XXIV    The  Problem  of  Complete  Wage  Justice 381 

Comparative  Claims  of  Diflferent  Labour  Groups   .     .  381 

Wages  Versus  Profits 388 

Wages  Versus  Interest 390 

Wages  Versus  Prices 393 

Concluding  Remarks 398 

XXV    Methods  of  Increasing  Wages 400 

The  Minimum  Wage   in  Operation 400 

The  Question  of  Constitutionality 405 

The  Ethical  and  Political  Aspects 407 

The  Economic   Aspect 408 

Opinions  of  Economists 412 

Other    Legislative    Proposals 416 

Labour  Unions 417 

Organisation    Versus    Legislation 420 

Participation    in    Capital   Ownership 423 

References  on   Section   IV 425 

XXVI    Summary  and  Conclusion 426 

The  Landowner  and  Rent 426 

The  Capitalist  and  Interest 427 

The  Business  Man  and  Profits 428 

The  Labourer    and    Wages 430 

Concluding  Observations   . 431 

Index 453 


INTRODUCTORY  CHAPTER 

THE  ELEMENTS  AND  SCOPE  OF  THE  PROBLEM 

Distributive  justice  is  primarily  a  problem  of  incomes 
rather  than  of  possessions.  It  is  not  immediately  con- 
cerned with  John  Brown's  railway  stock,  John  White's 
house,  or  John  Smith's  automobile.  It  deals  with  the 
morality  of  such  possessions  only  indirectly  and  under  one 
aspect ;  that  is,  in  so  far  as  they  have  been  acquired  through 
income.  Moreover,  it  deals  only  with  those  incomes  that 
are  derived  from  participation  in  the  process  of  pro- 
duction. For  example;  it  considers  the  labourer's  wages, 
but  not  the  subsidies  that  he  may  receive  through  charity 
or  friendship.  Its  province  is  not  the  distribution  of  all 
the  goods  of  the  country  among  all  the  people  of  the  coun- 
try, but  only  the  distribution  of  the  products  of  industry 
among  the  classes  that  have  taken  part  in  the  making  of 
these  products. 

These  classes  are  four,  designated  as  landowners,  capi- 
talists, undertakers  or  business  men,  and  labourers  or  wage 
earners.  The  individual  member  of  each  class  is  an  agent 
of  production,  while  the  instrument  or  energy  that  he  owns 
and  contributes  is  a  factor  of  production.  Thus,  the  land- 
owner is  an  agent  of  production  because  he  contributes  to 
the  productive  process  the  factor  known  as  land,  and  the 
capitalist  is  an  agent  of  production  because  he  contributes 
the  factor  known  as  capital;  while  the  business  man  and 
the  labourer  are  agents  not  only  in  the  sense  that  they  con- 
tribute factors  to  the  process,  but  in  the  very  special  sense 
that  their  contributions  involve  the  continuous  expendi- 
ture of  human  energy.     Now  the  product  of  industry  is 


XIV  INTRODUCTORY   CHAPTER 

distributed  among  these  four  classes  precisely  because  they 
are  agents  of  production;  that  is  because  they  own  and  put 
at  the  disposal  of  industry  the  indispensable  factors  of 
production.  We  say  that  the  agents  of  production  **  put 
the  factors  of  production  at  the  disposal  of  industry," 
rather  than  "  exercise  or  operate  the  factors,"  because 
neither  the  landowner  nor  the  capitalist,  as  such,  expend 
continuous  energy  in  the  productive  process.  All  that  is 
necessary  to  enforce  a  claim  upon  the  product  is  to  con- 
tribute an  instrument  or  factor  without  which  production 
cannot  be  carried  on. 

The  product  distributed  in  any  country  during  a  single 
year  is  variously  described  by  economists  as  the  national 
product,  the  national  income,  the  national  dividend.  It 
consists  not  merely  of  material  goods,  such  as  houses, 
food,  clothing,  and  automobiles,  but  also  of  those  non- 
material  goods  known  as  services.  Such  are  the  tasks 
performed  by  the  domestic  servant,  the  barber,  the  chauf- 
feur, the  public  official,  the  physician,  the  teacher;  or  any 
other  personal  service  "  that  is  valued,  as  material  com- 
modities are  valued,  according  to  their  selling  prices." 
Even  the  services  of  the  clergyman  are  included  in  the 
national  income  or  product,  since  they  are  paid  for  and 
form  a  part  of  the  annual  supply  of  good  things  produced 
and  distributed  within  the  country.  In  the  language  of 
the  economist,  anything  that  satisfies  a  human  want  is  a 
utility,  and  forms  part  of  the  national  wealth ;  hence  there 
can  be  no  sufficient  reason  for  excluding  from  the  national 
income  goods  which  minister  to  spiritual  or  intellectual 
wants.  The  services  of  the  clergyman,  the  actor,  the 
author,  the  painter,  and  the  physician  are  quite  as  much  a 
part  of  the  utilities  of  life  as  the  services  of  the  cook,  the 
chambermaid,  or  the  barber ;  and  all  are  as  clearly  utilities 
as  bread,  hats,  houses,  or  any  other  material  thing.  In  a 
general  way,  therefore,  we  say  that  the  national  product 
which  is  available  for  distribution  among  the  different 


THE  ELEMENTS   AND   SCOPE  OF  THE   PROBLEM         XV 

productive  classes  comprises  all  the  utilities,  material  and 
non-material,  that  are  produced  through  human  agents 
and  satisfy  human  desires. 

In  the  great  majority  of  instances  the  product  is  not 
distributed  in  kind.  The  wheat  produced  on  a  given  farm 
is  not  directly  apportioned  among  the  farmers,  labourers, 
and  landowners  that  have  co-operated  in  its  production; 
nor  are  the  shoes  turned  out  by  a  given  factory  divided 
among  the  co-operating  labourers  and  capitalists ;  and  it  is 
obvious  that  personal  services  cannot  be  returned  to  the 
persons  that  have  rendered  them.  Cases  of  partial  direct 
distribution  do,  indeed,  occur;  as  when  the  tenant  takes 
two-thirds  and  the  landowner  one-third  of  the  crop  raised 
by  the  former  on  land  belonging  to  the  latter ;  or  when  the 
miller  receives  his  compensation  in  a  part  of  the  flour  that 
he  grinds.  To-day,  however,  such  instances  are  relatively 
insignificant.  By  far  the  greater  part  of  the  material 
product  is  sold  by  the  undertaker  or  business  man,  and  the 
price  is  then  divided  between  himself  and  the  other  agents 
of  production.  All  personal  services  are  sold,  and  the 
price  is  obtained  by  the  performers  thereof.  The  farmer 
sells  his  wheat,  the  miller  his  flour,  and  the  barber  his 
services.  With  the  money  received  for  his  part  in  pro- 
duction each  productive  agent  obtains  possession  of  such 
kinds  and  amounts  of  the  national  product  as  his  desires 
dictate  and  his  income  will  procure.  Hence  the  distribu- 
tion of  the  product  is  effected  through  the  conversion  of 
producers'  claims  into  money,  and  the  exchange  of  the 
latter  for  specific  quantities  and  qualities  of  the  product. 

While  the  national  product  as  a  whole  is  divided  among 
the  four  productive  classes,  not  every  portion  of  it  is  dis- 
tributed among  actually  distinct  representatives  of  these 
classes.  When  more  than  one  factor  of  production  is 
owned  by  the  same  person,  the  product  will  obviously  not 
go  to  four  different  classes  of  persons.  For  example;  the 
crop  raised  by  a  man  on  his  own  unmortgaged  land,  with 


XVI  INTRODUCTORY   CHAPTER 

his  own  instruments,  and  without  any  hired  assistance; 
and  the  products  of  the  small  shopkeeper,  tailor,  and 
barber  who  are  similarly  self  sufficient  and  independent, — 
are  in  each  case  obtained  by  one  person,  and  do  not 
undergo  any  actual  distribution.  Even  in  these  instances, 
however,  there  occurs  what  may  be  called  virtual  distribu- 
tion, inasmuch  as  the  single  agent  owns  more  than  one 
factor,  and  performs  more  than  one  productive  function. 
And  the  problem  of  distributive  justice  in  such  cases  is  to 
determine  whether  all  these  productive  functions  are  prop- 
erly rewarded  through  the  total  amount  which  the  indi- 
vidual has  received.  Where  the  factors  are  owned  by 
distinct  persons,  or  groups  of  persons,  the  problem  is  to 
determine  whether  each  group  is  properly  remunerated  for 
the  single  function  that  it  has  performed. 

The  problem  of  the  morality  of  industrial  incomes  is 
obviously  complex.  For  example;  the  income  of  the 
farmer  is  sometimes  derived  from  a  product  which  he 
must  divide  with  a  landowner  and  with  labourers;  some- 
times from  a  product  which  he  shares  with  labourers  only; 
and  sometimes  from  a  product  which  he  can  retain  wholly 
for  himself.  The  labourer's  income  arises  sometimes  out 
of  a  product  which  he  divides  with  other  agents  of  pro- 
duction; sometimes  out  of  a  product  which  he  divides 
with  other  labourers  as  well  as  other  agents;  and  some- 
times out  of  a  product  of  which  he  receives  the  full  money 
equivalent.  The  complexity  of  the  forces  determining 
distribution  and  income  indicate  a  complexity  in  the  forces 
affecting  the  morality  of  income.  Moreover,  there  is  the 
more  fundamental  ethical  question  concerning  the  titles 
of  distribution:  whether  mere  ownership  of  a  factor  of 
production  gives  a  just  claim  upon  the  product,  as  in  the 
case  of  the  landowner  and  the  capitalist;  whether  such  a 
claim,  assuming  it  to  be  valid,  is  as  good  as  that  of  the 
labourer  and  the  business  man,  who  expend  human  energy 
in  the  productive  process ;  whether  different  kinds  of  pro- 


THE   ELEMENTS   AND  SCOPE   OF  THE   PROBLEM       XVU 

ductive  activity  should  be  rewarded  at  different  rates; 
and  if  so  in  what  proportion.  Why  should  the  capitalist 
receive  six  per  cent.,  rather  than  two  per  cent.,  or  sixteen 
per  cent.?  Why  should  the  locomotive  engineer  receive 
more  than  the  trackman  ?  Why  should  not  all  persons  be 
compensated  equally?  Should  all  or  any  of  the  benefits 
of  industrial  improvements  go  to  the  consumer?  Such  are 
typical  questions  in  the  study  of  distributive  justice.  They 
are  sufficient  to  give  some  idea  of  the  magnitude  and 
difficulty  of  the  problem. 

Scarcely  less  formidable  is  the  task  of  suggesting  means 
to  correct  the  injustices  of  the  present  distribution.  The 
difficulties  in  this  part  of  the  field  are  indicated  by  the 
multiplicity  of  social  remedies  that  have  been  proposed, 
and  by  the  fact  that  none  of  them  has  succeeded  in  winning 
the  adhesion  of  more  than  a  minority  of  the  population. 
We  shall  be  obliged  not  only  to  pass  moral  judgment  upon 
the  most  important  of  these  proposals,  but  to  indicate  and 
advocate  a  more  or  less  complete  and  systematic  group  of 
such  reforms  as  seem  to  be  at  once  feasible  and  righteous. 

GENERAL  REFERENCES 

Taussig:     Principles  of  Economics.    Macmillan;  191 1. 
Devas:     Political  Economy.    Longmans;  1901. 
Hobson:     The  Industrial  System.     Longmans;  1909. 
Clark  :    The  Distribution  of  Wealth.    Macmillan ;  1899.  • 
Smart:    The  Distribution  of  Income.    London;  1899. 
WiLLOUGHBY  :     Social  Justice.    Macmillan ;  1900. 
Carver:    Essays  in  Social  Justice.    Harvard  University  Press;  1915. 
Ely  :     Property  and  Contract  in  Their  Relations  to  the  Distribution 
of  Wealth.     Macmillan;  1914. 

Nearing:     Income.    Macmillan;  191 5. 

Streightoff:    The   Distribution   of   Incomes   in   the   United   States. 

Longmans ;  1912. 
Wagner:     Grundlegung  der  Nationaloekonomie.    Leipzig;  1892-1894. 
Pesch  :    Lehrbuch  der  Nationaloekonomie.    Freiburg;  1905-1913. 
Antoine:    Cours  d'  ficonomie  Sociale.     Paris;  1899. 


XVlll  INTRODUCTORY   CHAPTER 

HiTZE :    Capital  et  Travail.    Louvain ;  1898. 

Hollander  :    The  Abolition  of  Poverty.    Houghton  Mifflin  Company ; 

1914. 
Ellwood:    The  Social  Problem.    Macmillan;  1915. 
Garriguet:    The  Social  Value  of  the  Gospel.    Herder;  191 1. 
Parkinson  :    A  Primer  of  Social  Science.    Devin-Adair  Co. ;  1913. 
Vermeersch:     Quaestiones  de  Justitia.    Bruges;  1901. 
King:    The  Wealth  and  Income  of  the  People  of  the  United  States. 

Macmillan ;  1915. 
Commission  on  Industrial  Relahgns.    Final  Report;  1915. 


1 


SECTION  I 

THE  MORALITY  OF  PRIVATE  LANDOWNER- 
SHIP  AND  RENT 


DISTRIBUTIVE  JUSTICE 

CHAPTER  I 

THE  landowner's  SHARE   OF  THE   NATIONAL  PRODUCT 

That  part  of  the  national  product  which  represents 
land,  and  is  attributed  specifically  to  land,  goes  to  the  land- 
owner. It  is  called  economic  rent,  or  simply  rent.  We 
say  that  rent  "  is  attributed  specifically  to  land,"  rather 
than  "  is  produced  specifically  by  land,"  because  we  do  not 
know  what  proportion  of  the  joint  product  of  the  different 
factors  of  production  exactly  reflects  the  productive  con- 
tribution of  any  factor.  Economic  rent  represents  the 
productivity  of  land  in  so  far  as  it  indicates  what  men  are 
willing  to  pay  for  land-use  in  the  productive  process.  In 
any  particular  case  rent  comes  into  existence  because  the 
land  makes  a  commercially  valuable  contribution  to  the 
product ;  and  it  goes  to  the  landowner  because  this  is  one 
of  the  powers  or  rights  included  in  the  institution  of  pri- 
vate ownership.  And  the  landowner's  share  is  received 
by  him  precisely  in  his  capacity  as  landowner,  and  not  be- 
cause he  may  happen  to  be  labourer,  farmer,  or  proprietor 
of  agricultural  capital. 

It  is  perhaps  superfluous  to  observe  that  not  all  land 
produces  rent.  While  almost  all  land  is  useful  and  pro- 
ductive, at  least  potentially,  there  is  in  almost  every  local- 
ity some  land  which  in  present  conditions  does  not  war- 
rant men  in  paying  a  price  for  its  use.  If  the  crop  raised 
on  very  sandy  soil  is  so  small  as  to  cover  merely  the  outlay 

3 


4  DISTRIBUTIVE   JUSTICE 

for  labour  and  capital,  men  will  not  pay  rent  for  the  use 
of  that  soil.  Yet  the  land  has  contributed  something  to 
the  product.  Herein  we  have  another  indication  that  rent 
is  not  an  adequate  measure  of  land  productivity.  It 
merely  represents  land  value, —  at  a  given  time,  in  given 
circumstances. 

Economic  Rent  Always  Goes  to  the  Landowner 

All  land  that  is  in  use,  and  for  the  use  of  which  men 
are  willing  to  pay  a  price  yields  rent,  whether  it  is  used 
by  a  tenant  or  by  the  owner.  In  the  latter  case  the  owner 
may  not  call  the  rent  that  he  receives  by  that  name;  he 
may  not  distinguish  between  it  and  the  other  portions  of 
the  product  that  he  gets  from  the  land;  he  may  call  the 
entire  product  profits,  or  wages.  Nevertheless  the  rent 
exists  as  a  surplus  over  that  part  of  the  product  that  he 
can  regard  as  the  proper  return  for  his  labour,  and  for  the 
use  of  his  capital-instruments,  such  as,  horses,  buildings, 
and  machinery.  If  a  farmer  employs  the  same  amount 
and  kind  of  labour  and  capital  in  the  cultivation  of  two 
pieces  of  land,  one  of  which  he  owns,  the  other  being  hired 
from  some  one  else;  if  his  net  product  is  the  same  in  both 
cases,  say,  i,ooo  dollars;  and  if  he  must  pay  200  dollars 
to  the  owner  of  the  hired  land, —  then,  200  of  the  1,000 
dollars  that  he  receives  from  his  own  land,  is  likewise  to 
be  attributed  specifically  to  his  land  rather  than  to  his 
capital  or  labour.  It  is  rent.  While  the  whole  product  is 
due  in  some  degree  to  the  productive  power  of  land,  200 
dollars  of  it  represents  land  value  in  the  process  of  pro- 
duction, and  goes  to  him  solely  in  his  capacity  as  land- 
owner. The  rent  that  arises  on  land  used  for  building 
sites  is  of  the  same  general  character,  and  goes  likewise  to 
the  owner  of  the  land.  The  owner  of  the  site  upon  which 
a  factory  is  located  may  hire  it  to  another  for  a  certain 
sum  annually,  or  he  may  operate  the  factory  himself.  In 
either  case  he  receives  rent,  the  amount  that  the  land  itself 


THE   LANDOWNERS   SHARE   OF   NATIONAL   PRODUCT      $ 

is  worth  for  use,  independently  of  the  return  that  he  ob- 
tains for  his  expenditure  of  capital  and  labour.  Even 
when  a  person  uses  his  land  as  a  site  for  a  dwelling  which 
he  himself  occupies,  the  land  still  brings  him  economic  rent, 
since  it  affords  him  something  for  which  he  would  be 
obliged  to  pay  if  his  house  were  located  on  land  of  the 
same  kind  owned  by  some  one  else. 

Economic  Rent  and  Commercial  Rent 

It  will  be  observed  that  the  landowner's  share  of  the 
product,  or  economic  rent,  is  not  identical  with  commer- 
cial rent.  The  latter  is  a  payment  for  land  and  capital, 
or  land  and  improvements,  combined.  When  a  man  pays 
nine  hundred  dollars  for  the  use  of  a  house  and  lot  for 
a  year,  this  sum  contains  two  elements,  economic  rent  for 
the  lot,  and  interest  on  the  money  invested  in  the  house. 
Assuming  that  the  house  is  worth  ten  thousand  dollars, 
and  that  the  usual  return  on  such  investments  is  eight  per 
cent.,  we  see  that  eight  hundred  dollars  goes  to  the  owner 
as  interest  on  his  capital,  and  only  one  hundred  dollars  as 
rent  for  his  land.  Similarly  the  price  paid  by  a  tenant 
for  the  use  of  an  improved  farm  is  partly  interest  on  the 
value  of  the  improvements,  and  partly  economic  rent.  In 
both  cases  the  owner  may  reckon  the  land  as  so  much 
capital  value,  and  the  economic  rent  as  interest  thereon, 
just  as  the  commercial  rent  for  the  buildings  and  other 
improvements  is  interest  on  their  capital  value;  but  the 
economist  distinguishes  between  them  because  he  knows 
that  they  are  determined  by  different  forces,  and  that  the 
distinction  is  of  importance.  He  knows,  for  example, 
that  the  supply  of  land  is  fixed,  while  the  supply  of  capital 
is  capabie  of  indefinite  increase.  In  many  situations, 
therefore,  rent  increases,  but  interest  remains  stationary 
or  declines.  Sometimes,  though  more  rarely,  the  reverse 
occurs.  As  we  shall  see  later,  this  and  some  other  specific 
characteristics   of  land   and  rent  have   important  moral 


6  DISTRIBUTIVE   JUSTICE 

aspects;  consequently  the  moralist  cannot  afford  to  confuse 
rent  with  interest. 

The  Cause  of  Economic  Rent 

The  cause  of  economic  rent  is  the  fact  that  land  is 
limited  relatively  to  the  demand  for  it.  If  land  were  as 
plentiful  as  air  mere  ownership  of  some  portion  of  it 
would  not  enable  the  owner  to  collect  rent.  As  land- 
owner he  would  receive  no  income.  If  he  cultivated  his 
land  himself  the  return  therefrom  would  not  exceed  normal 
compensation  for  his  labour,  and  normal  interest  on  his 
capital.  Since  no  one  would  be  compelled  to  pay  for  the 
use  of  land,  competition  among  the  different  cultivators 
would  keep  the  price  of  their  product  so  low  that  it  would 
merely  reimburse  them  for  their  expenditures  of  capital 
and  labour.  In  similar  conditions  no  rent  would  arise  on 
building  sites.  The  cause  of  the  amount  of  rent  may  also 
be  stated  in  terms  of  scarcity.  At  any  given  time  and 
place,  the  rent  of  a  piece  of  land  will  be  determined  by 
the  supply  of  that  kind  of  land  relatively  to  the  demand 
for  it.  However,  the  demand  itself  will  be  regulated  by 
the  fertility  or  by  the  location  of  the  land  in  question. 
Two  pieces  of  agricultural  land  equally  distant  from  a 
city,  but  of  varying  fertility,  will  yield  different  rents 
because  of  this  difference  in  natural  productiveness.  Two 
pieces  of  ground  of  equal  natural  adaptability  for  building 
sites,  but  at  unequal  distances  from  the  centre  of  a  city, 
will  produce  different  rents  on  account  of  their  difference 
of  location.  The  absolute  scarcity  of  land  is,  of  course, 
fixed  by  nature ;  its  relative  scarcity  is  the  result  of  human 
activities  and  desires. 

The  definition  of  rent  adopted  in  these  pages,  "  what 
men  are  willing  to  pay  for  the  use  of  land,"  or,  "  what  land 
is  worth  for  use,"  is  simpler  and  more  concrete,  though 
possibly  less  scientific,  than  those  ordinarily  found  in 
manuals   of   economics,   namely :   "  that   portion   of   the 


THE   LANDOWNERS   SHARE   OF   NATIONAL   PRODUCT      7 

product  that  remains  after  all  the  usual  expenditures  for 
labour,  capital,  and  directive  ability  have  been  deducted ; " 
or,  "  the  surplus  which  any  piece  of  land  yields  over  the 
poorest  land  devoted  to  the  same  use,  when  the  return 
from  the  latter  is  only  sufficient  to'  cover  the  usual  expenses 
of  production." 

The  statement  that  all  rent  goes  to  the  landowner  sup- 
poses that,  in  the  case  of  hired  land,  the  tenant  pays  the 
full  amount  that  would  result  from  competitive  bidding. 
Evidently  this  was  not  the  case  under  the  feudal  system, 
when  rents  were  fixed  by  custom  and  remained  stationary 
for  centuries.  Even  to-day,  competition  is  not  perfect, 
and  men  often  obtain  the  use  of  land  for  less  than  they  or 
others  might  have  been  willing  to  give.  But  the  state- 
ment in  question  does  describe  what  tends  to  happen  in  a 
system  of  competitive  rents. 

Before  discussing  the  morality  of  the  landowner's 
income,  and  of  rent  receiving,  we  may  with  profit  glance 
at  the  history  of  land  tenure.  Thus  we  shall  get  some 
idea,  first,  of  the  antiquity  of  the  present  system,  and, 
second,  of  its  effects  upon  individual  and  social  welfare. 
Both  these  considerations  have  an  important  bearing  upon 
the  moral  problem;  for  length  of  existence  creates  a  pre- 
sumption in  favour  of  the  social,  and  therefore  the  moral, 
value  of  any  institution;  and  past  experience  is  our  chief 
means  of  determining  whether  an  institution  is  likely  to  be 
socially  beneficial,  and  therefore  morally  right,  in  the 
future. 


CHAPTER  II 

LANDOWNERSHIP   IN    HISTORY 

Thirty  or  thirty-five  years  ago,  the  majority  of 
economic  historians  seemed  to  accept  the  theory  that  land 
was  originally  owned  in  common.^  They  held  that  in  the 
beginning  the  community,  usually  a  village  community, 
was  the  landowner;  that  the  community  either  cultivated 
the  land  as  a  corporation,  and  distributed  the  product 
among  the  individual  members,  or  periodically  divided  the 
land  among  the  social  units,  and  permitted  the  latter  to 
cultivate  their  allotments  separately.  The  second  of  these 
forms  of  tenure  was  the  more  general.  The  primitive 
time  to  which  the  theory  referred  was  not  the  period  when 
men  got  their  living  by  hunting  and  fishing,  or  by  rearing 
herds,  but  the  agricultural  stage  of  economic  development, 
when  life  had  become  settled.  Of  the  arguments  upon 
which  the  theory  was  based,  some  consisted  of  ambiguous 
statements  by  ancient  writers,  such  as  Plato,  Caesar,  and 
Tacitus,  and  others  were  merely  inferences  drawn  from 
the  existence  of  certain  agrarian  institutions:  family 
ownership  of  land ;  common  pasture  lands  and  woodlands ; 
periodical  distribution  of  land  among  the  cultivators,  as 
in  the  German  Mark,  the  Russian  Mir,  the  Slavonic 
Zadruga,  and  the  Javanese  Dessa.    All  these  practices 

1  The  most  notable  exponents  of  this  view  were :  Von  Maurer, 
"Einleitung  zur  Geschichte  der  Mark,"  1854;  Viollet,  "  Bibliotheque 
de  r  ecole  des  chartres,"  1872;  Maine,  "Village  Communities  in  the 
East  and  the  West,"  1872 ;  and  De  Laveleye,  "  De  la  propriete  et  ses 
formes  primitives,"  1874,  of  which  an  English  translation  appeared  in 
1878  under  the  title,  "  Primitive  Property." 

8 


LANDOWNERSHIP   IN    HISTORY  9 

have  been  interpreted  as  "  survivals  "of  primitive  common 
ownership.  .  Only  on  this  hypothesis,  it  is  argued,  can  they 
be  satisfactorily  explained. 

More  recent  writers  have  subjected  the  various  argu- 
ments for  this  theory  to  a  searching  criticism.^  To-day  the 
great  majority  of  scholars  would  undoubtedly  accept  the 
conclusion  of  Fustel  de  Coulanges,  that  the  arguments  and 
evidence  are  not  sufficient  to  prove  that  in  the  earliest 
stages  of  agricultural  life  land  was  held  in  common;  and 
a  majority  would  probably  take  the  more  positive  ground 
that  common  ownership  in  the  sense  of  communal  cultiva- 
tion and  distribution,  never  existed  for  any  considerable 
length  of  time  among  any  agricultural  people.  The 
present  authoritative  opinion  on  the  subject  is  thus  sum- 
marized by  Professor  Ashley: 

"  From  the  earliest  historical  times,  in  Gaul  and  Ger- 
many, very  much  land  was  owned  individually,  and  wealth 
on  one  side  and  slavery  on  the  other  were  always  very 
important  factors  in  the  situation. 

"  Even  in  Germany,  communal  ownership  of  land  was 
never  a  fundamental  or  generally  pervasive  social  institu- 
tion; there  was  something  very  much  like  large  private 
estates,  worked  by  dependents  and  slaves,  from  the  very 
earliest  days  of  Teutonic  Settlement. 

'*  As  to  England,  it  is  highly  probable  that  we  shall  not 
find  anything  that  can  fairly  be  called  a  general  com- 
munal system  of  landowning,  combined  with  a  substantial 
equality  among  the  majority  of  the  people,  under  condi- 
tions of  settled  agriculture.     To  find  it  in  any  sense  we 

1  Chief  among  these  writers  are :  Fustel  de  Coulanges  in  an  article 
in  "  Revue  des  Questions  Historiques,"  April,  1889 ;  translated  by  Mar- 
garet Ashley,  and  published  with  an  introductory  chapter  by  W.  J. 
Ashley  under  the  title,  "  The  Origin  of  Property  in  Land,"  1891 ;  G. 
Von  Below,  "  Beilage  zur  Allgemeine  Zeitung :  Das  kurze  Leben  einer 
vielgenannten  Theorie,"  1903 ;  F.  Seebohm,  "  The  Village  Community," 
1883.  Cf.  Whittaker,  "  Ownership,  Tenure,  and  Taxation  of  Land," 
1914,  ch.  ii;  Cathrein,  "Das  Privatgrundeigenthum  und  seine  Geg^er," 
1909;  and  Pesch,  "  Lehrbuch  der  Nationaloekonomie,"  I,  183-188. 


lO  DISTRIBUTIVE  JUSTICE 

shall  have  to  go  back  to  an  earlier  and  *  tribal '  condition, 
if,  indeed,  we  shall  find  it  there !  "  ^ 

No  Private  Ownership  in  Pre-Agricultural  Conditions 

Whenever  and  wherever  men  got  their  living  by  hunting 
and  fishing,  there  was  no  inducement  to  own  land  pri- 
vately, except  possibly  those  portions  upon  which  they 
built  their  huts  or  houses.  **  Until  they  become  more  or 
less  an  agricultural  people  they  are  usually  hunters  or 
fishermen  or  both,  and  possibly  also  to  a  limited  extent 
keepers  of  sheep  and  cattle.  Population  is  then  sparse 
and  unoccupied  territory  is  plentiful,  and  questions  of  the 
ownership  of  particular  tracts  of  land  do  not  concern 
them."  ^  In  any  region  occupied  by  a  group  or  tribe,  all 
portions  of  the  land  and  the  water  were  about  equally 
productive  of  game  and  fish ;  the  amount  obtainable  by  any 
individual  had  no  relation  to  labour  on  any  particular  piece 
of  soil ;  and  it  was  much  easier  for  each  to  range  over  the 
whole  region  in  common  with  his  fellows  than  to  mark 
off  a  definite  section  upon  which  he  would  not  permit 
others  to  come,  but  beyond  which  he  himself  would  not  be 
permitted  to  go.  In  such  conditions  private  ownership  of 
land  would  have  been  folly.  Tribal  or  group  ownership 
was,  however,  in  vogue,  especially  among  those  groups 
that  were  in  control  of  the  better  grounds  or  streams. 
Even  this  form  of  proprietorship  was  comparatively  un- 
stable, since  the  people  were  to  a  considerable  degree 
nomadic,  and  were  willing  to  abandon  present  possessions 
whenever  there  was  a  prospect  of  obtaining  better  ones 
elsewhere.  Among  men  who  got  their  living  by  rearing 
herds,  the  inducement  to  hold  land  in  exclusive  private 
control  would  be  somewhat  stronger.  The  better  grazing 
tracts  would  be  coveted  by  many  different  persons,  espe- 
cially   in   the   more   populous    communities.     And   there 

1  Quoted  in  Whittaker,  op.  cit.,  pp.  27,  28. 

2  Idem,  p.  29. 


LANDOWNERSHIP   IN    HISTORY  II 

would  always  be  the  possibility  of  confusion  among  the 
different  herds,  and  contention  among  their  owners.  In 
such  circumstances  the  advantages  of  exclusive  control 
would  sometimes  outweigh  the  benefits  of  common  use 
and  ownership.  In  the  thirteenth  chapter  of  Genesis  we 
are  told  that,  owing  to  strife  between  the  herdsmen  of 
Abram  and  Lot,  the  brothers  separated,  and  agreed  to 
become  the  exclusive  possessors  of  different  territories. 
Nevertheless,  it  is  probable  that  tribal  ownership  was  the 
prevailing  form  of  land  tenure  so  long  as  people  remained 
mainly  in  pastoral  conditions. 

It  is  likewise  probable  that  the  same  system  continued 
in  many  cases  for  some  time  after  men  began  to  cultivate 
the  soil.  At  least,  this  would  seem  to  have  been  the 
natural  arrangement  while  land  was  plentiful,  and  the 
methods  of  cultivation  crude  and  soil-exhausting.  It 
would  be  more  profitable  to  take  up  new  lands  than  to 
continue  upon  the  old.  Within  historical  times  this  system 
prevailed  among  the  ancient  Germans,  some  of  the  tribes 
of  New  Zealand,  and  some  of  the  tribes  of  Western 
Africa.  Where  land  was  not  so  plentiful  it  was  some- 
times redistributed  among  individuals  or  heads  of  families, 
as  often  as  a  death  occurred  or  a  new  member  arrived  in 
the  community.  Some  of  the  tribes  and  peoples  who  ob- 
served this  practice  were  the  ancient  Irish,  the  aborigines  of 
Peru,  Mexico,  and  parts  of  what  is  now  the  United  States, 
and  Australia,  and  some  of  the  tribes  of  Africa,  India,  and 
Malaysia.^  Whether  the  most  primitive  agricultural  sys- 
tems of  every  people  were  of  this  nature  we  have,  of 
course,  no  means  of  knowing,  but  the  supposition  is  ante- 
cedently probable;  for  agriculture  must  have  begun  very 
gradually,  and  been  for  some  time  practised  in  connection 
with  the  more  primitive  methods  of  obtaining  a  livelihood. 
As  the  land  had  been  held  for  the  most  part  in  common 

iCf.  P.  W.  Joyce,  "A  Social  History  of  Ancient  Ireland,"  1903; 
and  Letourneau,  "  Property :  Its  Origin  and  Development,"  1896. 


12  DISTRIBUTIVE   JUSTICE 

during  the  hunting  and  fishing  stage  and  during  the  pas- 
toral stage,  the  same  arrangement  would  probably  continue 
until  the  people  found  it  necessary  to  cultivate  the  same 
tracts  of  land  year  after  year,  and  conceived  the  desire  to 
retain  their  holdings  in  stable  possession  and  to  transmit 
them  to  their  children.  Moreover,  so  long  as  the  members 
of  the  clan  remained  strongly  conscious  of  their  kinship, 
and  realised  the  necessity  of  acting  as  a  unit  against  their 
enemies,  there  would  be  a  strong  incentive  to  clan  owner- 
ship of  the  land,  and  clan  allotment  of  it  among  the  indi- 
vidual members.  In  other  words,  the  clan  would,  in  these 
circumstances,  have  the  same  motives  for  common  owner- 
ship that  exist  to-day  in  the  family. 

The  oldest  historical  peoples,  the  Israelites,  Egyptians, 
Assyrians,  Babylonians,  and  Chinese,  had  private  owner- 
ship of  land  at  the  beginning  of  their  recorded  history.. 
Most  of  them,  however,  had  been  cultivating  land  for  a 
considerable  length  of  time,  and  had  acquired  a  consider- 
able degree  of  civilisation,  before  the  earliest  period  of 
their  existence  of  which  we  have  any  knowledge.  It  is 
quite  possible  that  those  among  them  that  had  passed 
through  the  hunting  and  fishing  or  the  pastoral  stage  of 
existence,  had  practised  tribal  or  common  ownership  dur- 
ing the  earlier  portion  of  their  agricultural  life. 

How  the  Change  Probably  Took  Place 

The  change  from  tribal  to  private  landownership  could 
have  occurred  in  a  great  variety  of  ways.  For  example, 
the  chief,  patriarch,  or  king  might  have  gradually  obtained 
greater  authority  in  making  the  allotments  of  land  among 
the  members  of  the  tribe  or  group,  and  thus  acquired  a 
degree  of  control  over  the  land  which  in  time  became  prac- 
tical ownership;  he  might  have  seized  the  holdings  of 
deceased  persons,  or  of  those  who  were  unable  to  pay  him 
the  tax  or  tribute  that  he  demanded,  or  of  those  who  were 
for  any  reason  obnoxious  to  him.     Again,  the  taxes  paid 


LANDOWNERSHIP   IN    HISTORY  1 3 

to  the  chief  man  in  a  community  for  his  services  as  ruler 
might  have  come  in  time  to  be  regarded  as  a  payment  for 
the  use  of  the  land,  and  therefore  as  an  acknowledgment 
that  the  chief  was  also  the  landlord.  Even  in  the  Middle 
Ages  the  rents  received  by  the  feudal  lords  were  in  great 
measure  a  return  for  social  and  political  services,  just  as 
are  the  taxes  received  to-day  from  private  landowners  by 
the  State.  In  primitive  times,  as  well  as  later  on,  the  chief 
would  naturally  do  his  best  to  convert  this  institution  of 
tax  paying  or  tribute  paying  into  rent  paying,  and  to  add 
the  position  of  landowner  to  his  other  prerogatives.  After 
all,  the  transition  from  tribal  ownership,  with  private  cul- 
tivation and  private  receipt  of  the  produce  of  individual 
allotments,  to  overlordship  and  landlordism,  would  not 
have  been  greater  than  that  which  actually  took  place  in 
England  between  the  fifteenth  and  the  nineteenth  centuries, 
when  the  lords  became  absolute  owners  of  land  that  they 
had  previously  held  with  their  tenants  in  a  sort  of  divided 
or  dual  ownership.  In  a  word,  tribal  ownership  could 
have  been  displaced  by  landlordism  through  the  same 
methods  that  have  been  used  everywhere  by  the  powerful, 
the  ambitious,  and  the  greedy  against  the  weak,  the  indif- 
ferent, and  the  upright.  Nor  must  we  forget  the  influence 
of  conquest.  Most  of  the  countries  that  appear  in  his- 
torical times  with  a  system  of  private  ownership  had  at 
some  previous  period  been  subjugated  by  an  alien  people. 
In  many  of  these  the  conquerors  undoubtedly  introduced  a 
considerable  degree  of  individual  ownership,  the  more 
powerful  among  them  becoming  landlords,  while  their 
weaker  companions  and  the  mass  of  the  conquered  popula- 
^'   tion  were  established  in  a  condition  of  tenancy. 

Where  a  somewhat  widely  diffused  private  ownership 
succeeded  the  primitive  system,  it  was  probably  due  to  the 
free  action  of  the  cultivators,  as  soon  as  they  came  to 
realise  the  inconveniences  of  ownership  in  common. 
"  Any  enclosed  land  round  their  permanent  dwellings,  and 


14  DISTRIBUTIVE   JUSTICE 

any  land  outside  the  settlement  which  was  cleared,  re- 
claimed, and  cultivated,  or  occupied  with  cattle  by  indi- 
viduals or  families,  was  recognised  as  their  personal  prop- 
erty. Only  those  who  were  industrious,  enterprising,  and 
courageous  enough  would  clear,  occupy,  retain,  cultivate, 
and  defend  waste  land.  They  would  become  personal 
owners  of  cattle,  and  would  gradually  acquire  wealth 
which  would  enable  them  to  employ  others  and  still  fur- 
ther improve  their  position.  As  their  power  increased, 
and  as  population  grew,  the  bravest,  wealthiest,  and  most 
capable  fighting  men  amongst  them  would  become  chiefs 
or  a  species  of  nobles,  and  the  force  of  circumstances,  often 
no  doubt  aided  by  force  and  fraud,  would  eventually  make 
them  the  landowners  of  the  greater  part  of  the  district, 
with  the  more  or  less  willing  acquiescence  and  consent  of 
the  community  amongst  whom  they  lived,  and  to  whom 
they  extended  their  protection."  ^ 

Limited  Character  of  Primitive  Common  Ownership 

A  great  deal  of  the  opposition  to  the  theory  of  primitive 
common  ownership  of  agricultural  land,  seems  to  be  based 
upon  an  exaggerated. conception  of  the  scope  of  that  insti- 
tution. The  average  man  who  thinks  or  speaks  of  owner- 
ship to-day  has  in  mind  the  Roman  concept  and  practice 
of  private  property.  This  includes  the  unrestricted  right 
of  disposal ;  that  is,  the  power  to  hold  permanently,  to 
transfer  or  transmit,  to  use  or  to  abuse  or  not  to  use  at  all, 
to  retain  the  product  of  the  owner's  use,  to  rent  the  prop- 
erty to  any  person  and  for  any  period  that  the  owner 
chooses,  and  to  obtain  a  price  in  return  called  rent.  Any 
man  who  takes  the  theory  of  primitive  common  ownership 
to  imply  that  the  community  or  tribe  exercised  all  these 
powers  over  its  land,  will  have  no  difficulty  in  proving  that 
the  evidence  is  overwhelmingly  against  any  such  theory. 
Even  among  those  people  that  are  certainly  known  to  have 

1  Whittaker,  op.  cit.,  pp.  30,  31. 


LANDOWNERSHIP   IN    HISTORY  1 5 

practised  so-called  common  ownership  of  land,  there  are 
very  few  instances  of  communal  cultivation,  or  communal 
distribution  of  the  product.  Yet  these  are  included  in  the 
Roman  concept  of  ownership.  The  usual  method  seems 
to  have  been  periodical  allotment  by  the  community  of  the 
land  among  individuals,  individual  cultivation  of  the 
allotted  tracts,  and  individual  ownership  of  the  product. 
Moreover,  there  was  always  a  chief  or  patriarch  who  exer- 
cised considerable  authority  in  the  distribution  of  the  land, 
frequently  collected  a  rent  or  tax  from  the  cultivators, 
and  almost  invariably  exercised  something  like  private 
ownership  of  a  portion  of  the  land  for  his  direct  and 
special  benefit.  Sometimes  other  men  of  importance  in 
the  community  possessed  land  which  was  not  subject  to 
the  communal  allotment.  Primitive  ownership  of  land  in 
common  was,  therefore,  very  far  from  vesting  in  the  com- 
munity all  the  powers  that  inhere  in  the  private  proprietor 
of  land  according  to  the  Roman  law  and  usage. 

Private  Ownership  General  in  Historical  Times 

So  much  for  land  tenure  in  prehistoric  times.  During 
the  historical  period  of  the  existence  of  the  race,  almost 
all  civilised  peoples  have  practised  some  form  of  private 
ownership  in  the  matter  of  their  arable  lands.  While  dif- 
fering considerably  at  various  times  and  places,  it  has 
always  excluded  communal  allotment  of  land  and  com- 
munal distribution  of  the  product,  and  has  always  included 
private  receipt  of  the  product  by  the  owner-user,  or  private 
receipt  of  rent  when  the  owner  transferred  the  use  to 
some  one  else.  But  it  did  not  always  include  the  right  to 
determine  who  should  be  the  user.  In  the  later  centuries 
of  the  feudal  system,  for  example,  the  lord  could  not 
always  expel  the  tenants  from  the  land,  nor  prevent  them 
from  transmitting  the  use  of  it  to  their  children.  More- 
over, the  rent  that  he  received  was  customary  and  fixed, 
not  competitive  and  arbitrary,  and  it  was  looked  upon  in 


l6  DISTRIBUTIVE   JUSTICE 

great  measure  as  a  return  to  the  lord  for  social,  military, 
and  political  services,  as  well  as  a  payment  for  the  use  of 
land.  This  system  was  private  ownership,  indeed,  but  if 
we  apply  the  Roman  notion  of  ownership  we  shall  find  it 
difficult  to  decide  whether  the  tenant  or  the  lord  should 
more  properly  be  called  the  owner.  At  any  rate,  the  right 
of  ownership  possessed  by  the  lord  was  greatly  limited  by 
restrictions  which  favoured  the  masses  of  the  cultivators. 
In  every  community  there  were  common  wood  lands  and 
pasture  lands  for  the  free  use  of  all  the  inhabitants. 
Among  other  restrictions  of  private  ownership  and  con- 
trol in  favour  of  the  principle  of  equal  access  to  the  land  by 
all  persons,  we  may  mention  the  division  of  the  English 
villein's  holding  into  several  portions,  intermingled  with 
those  of  his  neighbours,  so  that  each  would  have  about  the 
same  amount  of  good  land ;  and  the  ancient  Hebrew  law 
whereby  alienated  land  was  returned  to  the  descendants  of 
its  original  owners  every  fifty  years. ^ 

Reckoning  the  feudal  lord,  and  all  other  overlords  who 
had  the  same  control  over  land,  as  private  proprietors,  we 
may  say  that  in  historical  times  the  arable  land  of  every 
country  has  been  owned  by  a  minority  of  the  population. 
Since  the  downfall  of  feudalism,  the  tendency  in  most 
regions  of  the  Western  world  has  been  toward  an  increase 
in  the  number  of  owners,  and  a  decrease  in  the  number  of 
great  estates.  This  tendency  has  been  especially  marked 
during  the  last  one  hundred  years.  It  will,  however,  need 
to  continue  for  a  very  long  time,  or  else  to  increase  its 
pace  very  rapidly,  before  land  ownership  will  be  diffused 
in  anything  like  the  measure  that  is  necessary  if  its  benefits 
are  to  be  shared  by  all  the  people.  Even  in  the  United 
States,  where  the  distribution  is  perhaps  more  general  than 
in  any  other  country,  only  38.4  per  cent,  of  the  families  in 
towns  and  cities  owned,  in  19 10,  the  homes  in  which  they 
lived,  and  therefore  the  land  upon  which  their  homes  were 

1  Leviticus  xxv,  23-28. 


LANDOWNERSHIP   IN    HISTORY  1 7 

located.     In  the  rural  districts  the  per  cent,   of  home- 
owning  families  was  only  62.8. 

Conclusions  from  History 

What  conclusions  does  history  warrant  concerning  the 
social  and  moral  value  of  private  landownership  ?  Here 
we  are  on  very  uncertain  ground ;  for  different  inferences 
may  be  drawn  from  the  same  group  of  facts  if  a  different 
section  of  them  be  selected  for  emphasis.  Sir  Henry 
Maine  and  Henry  George  both  accepted  the  theory  of 
primitive  agrarian  communism,  but  the  former  saw  in  this 
assumed  fact  a  proof  that  common  ownership  was  suited 
only  to  the  needs  of  rude  and  undeveloped  peoples,  while 
the  latter  regarded  it  as  a  sure  indication  that  common 
ownership  was  fundamentally  natural  and  in  accordance 
with  permanent  social  welfare.  The  fact  that  practically 
all  peoples  whose  history  we  know  discarded  communal  for 
private  ownership  as  soon  as  they  had  acquired  a  moderate 
degree  of  proficiency  in  methods  of  cultivation  and  in  the 
arts  of  civilised  life  does,  indeed,  create  a  presumption  that 
the  latter  system  is  the  better  for  civilised  men.  To  this 
extent  Sir  Henry  Maine  is  right.  Against  this  presump- 
tion Henry  George  maintained  that  common  ownership  was 
abandoned  solely  because  of  the  usurpation,  fraud,  and 
force  employed  by  the  powerful  and  privileged  classes. 
Undoubtedly  this  factor  played  a  great  part  in  bringing 
about  the  private  ownership  that  has  existed  and  still  exists, 
but  it  does  not  account  for  the  institution  as  a  whole  and 
everywhere.  H  chiefs,  kings,  and  other  powerful  per- 
sonages had  never  usurped  control  of  the  land,  if  no  people 
had  ever  conquered  the  territory  of  another,  it  is  probable 
that  private  ownership  would  have  taken  place  to  the  same 
extent,  although  it  would  have  been  much  more  widely 
diffused.  For  the  system  of  periodical  repartition  of  land, 
to  say  nothing  of  communal  cultivation  and  communal  dis- 
tribution of  the  product,  does  hinder  that  attachment  to  a 


1 8  DISTRIBUTIVE   JUSTICE 

particular  portion  of  the  soil  and  that  intensive  cultivation 
which  are  so  necessary  to  the  best  interests  of  the  culti- 
vator, the  most  productive  use  of  the  land,  and  therefore 
the  welfare  of  society. 

On  the  other  hand,  the  limitations  on  the  right  of  private 
ownership  which  have  been  established  in  so  many  places 
and  times  in  favour  of  those  who  were  not  owners,  show 
that  men  have  very  generally  looked  upon  land  as  in  some 
measure  the  inheritance  of  all  the  people.  Hence  arises 
the  presumption  that  this  conviction  is  but  the  reflection  of 
fundamental  and  permanent  human  needs. 

Summing  up  the  matter,  we  may  say  that  the  history  of 
land  tenure  points  on  the  whole  to  the  conclusion  that  pri- 
vate ownership  is  socially  and  individually  preferable  to 
agrarian  communism,  but  that  it  should  be  somewhat 
strictly  limited  in  the  interest  of  the  non-owners,  and  of 
the  community  as  a  whole. 


CHAPTER  III 

THE  ARGUMENTS  AGAINST   PRIVATE  LANDOWNERSHIP 

If  land  were  not  privately  owned  there  would  be  no 
receiving  of  rent  by  individuals.  Therefore,  the  morality 
of  the  landlord's  share  of  the  national  product  is  intimately 
related  to,  and  is  usually  treated  in  connection  with,  the 
morality  of  private  ownership. 

Substantially  all  the  opponents  of  private  property  in 
land  to-day  are  either  Socialists  or  disciples  of  Henry 
George.  In  the  view  of  the  former,  land  as  well  as  the 
other  means  of  production  should  be  owned  and  managed 
by  the  State.  Although  they  are  more  numerous  than  the 
Georgeites,  their  attack  upon  private  landownership  is  less 
conspicuous  and  less  formidable  than  the  propaganda  car- 
ried on  by  the  Henry  George  men.  The  Socialists  give 
most  of  their  attention  to  the  artificial  instruments  of  pro- 
duction, dealing  with  land  only  incidentally,  implicitly,  or 
occasionally.  The  followers  of  Henry  George,  commonly 
known  as  Single  Taxers  or  Single  Tax  men,  defend  the 
private  ownership  of  artificial  capital,  or  capital  in  the  strict 
economic  sense,  but  desire  that  the  control  of  the  com- 
munity over  the  natural  means  of  production  should  be 
so  far  extended  as  to  appropriate  for  public  uses  all  econo- 
mic rent.  Their  criticism  of  private  ownership  is  not  only 
more  prominent  than  that  made  by  the  Socialists,  but  is 
based  to  a  much  greater  extent  upon  ethical  considerations. 

Arguments  by  Socialists 

Indeed,  the  orthodox  or  Marxian  Socialists  are  logically 
debarred  by  their  social  philosophy  from  passing  a  strictly 

19 


20  DISTRIBUTIVE   JUSTICE 

moral  judgment  upon  property  in  land.  For  their  theory 
of  economic  determinism,  or  historical  materialism,  in- 
volves the  belief  that  private  landownership,  like  all  other 
social  institutions,  is  a  necessary  product  of  economic 
forces  and  processes.  Hence  it  is  neither  morally  good 
nor  morally  bad.  Since  neither  its  existence  nor  its  con- 
tinuance depends  upon  the  human  will,  it  is  entirely  devoid 
of  moral  quality.  It  is  as  unmoral  as  the  succession  of 
the  seasons,  or  the  movement  of  the  tides.  And  it  will 
disappear  through  the  inevitable  processes  of  economic 
evolution.  As  expressed  by  Engels :  "  The  growing  per- 
ception that  existing  social  institutions  are  unreasonable 
and  unjust,  that  reason  has  become  unreason,  and  right 
wrong,  is  only  proof  that  in  the  modes  of  production  and 
exchange  changes  have  taken  place,  with  which  the  social 
order,  adapted  to  earlier  economic  conditions,  is  no  longer 
in  keeping."  ^ 

Frequently,  however,  the  individual  Socialist  forgets  this 
materialistic  theory,  and  falls  back  upon  his  common  sense, 
and  his  innate  conceptions  of  right  and  wrong,  of  free 
will  and  responsibility.  Instead  of  regarding  the  existing 
land  system  as  a  mere  product  of  blind  economic  forces, 
he  often  denounces  it  as  morally  wrong  and  unjust.  His 
contentions  may  be  reduced  to  two  propositions :  The  pro- 
prietor who  takes  rent  from  a  cultivator  robs  the  producer 
of  a  part  of  his  product;  and  no  one  has  a  right  to  take  for 
his  exclusive  use  that  which  is  the  natural  heritage  and 
means  of  support  for  all  the  people.  Referring  to  the 
receipt  of  35,000,000  pounds  a  year  in  rent  by  8,000  British 
landlords,  Hyndman  and  Morris  exclaim :  "  Yet  in  the  face 
of  all  this  a  certain  school  still  contend  that  there  is  no  class 
robbery."  ^  Since  the  claim  that  the  labourer  has  a  right 
to  the  full  product  of  his  labour  applies  to  capital  as  well 
as  to  land,  it  can  be  more  conveniently  considered  when  we 

1 "  Socialism :  Utopian  and  Scientific,"  p.  45 ;  Chicago,  1900. 

2  "  A  summary  of  the  Principles  of  Socialism,"  p.  23 ;  London,  1899. 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       21 

come  to  treat  of  the  income  of  the  capitalist.  With  regard 
to  the  second  contention,  the  following  statement  by 
Robert  Blatchford  may  be  taken  as  fairly  representative 
of  Socialist  thought:  "The  earth  belongs  to  the  people. 
...  So  that  he  who  possesses  land  possesses  that  to  which 
he  has  no  right,  and  he  who  invests  his  savings  in  land  be- 
comes the  purchaser  of  stolen  property."  ^  Inasmuch  a^ 
this  argument  is  substantially  the  same  as  one  of  the  funda- 
mental contentions  in  the  system  of  Henry  George,  it  will 
be  discussed  in  connection  with  the  latter,  in  the  pages 
immediately  following. 

Henry  George's  Attack  on  the  Title  of  First  Occupancy 

Every  concrete  right,  whether  to  land  or  to  artificial 
goods,  is  based  upon  some  contingent  fact  or  ground,  called  a 
title.  By  reason  of  some  title  a  man  is  justified  in  appropri- 
ating a  particular  farm,  house,  or  hat.  When  he  becomes 
the  proprietor  of  a  thing  that  has  hitherto  been  ownerless, 
his  title  is  said  to  be  original ;  when  he  acquires  an  article 
from  some  previous  owner,  his  title  is  said  to  be  derived. 
As  an  endless  series  of  proprietors  is  impossible,  every 
derived  title  must  be  traceable  ultimately  to  some  original 
title.  Among  the  derived  titles  the  most  important  are 
contract,  inheritance,  and  prescription.  The  original  title 
is  either  first  occupancy  or  labour.  The  prevailing  view 
among  the  defenders  of  private  landownership  has  always 
been  that  the  original  title  is  not  labour  but  first  occupancy. 
If  this  title  be  not  valid  every  derived  title  is  worthless, 
and  no  man  has  a  true  right  to  the  land  that  he  calls  his 
own.  Henry  George's  attack  upon  the  title  of  first  occu- 
pancy is  an  important  link  in  his  argument  against  private 
property  in  land. 

"  Priority  of  occupation  give  exclusive  and  perpetual 
title  to  the  surface  of  a  globe  in  which,  in  the  order  of 
nature,    countless   generations   succeed   each   other!  .  .  . 

1 "  Socialism :  A  Reply  to  the  Pope's  Encyclical,"  p.  4;  London,  1899. 


2,2,  DISTRIBUTIVE   JUSTICE 

Has  the  first  comer  at  a  banquet  the  right  to  turn  back  all 
the  chairs,  and  claim  that  none  of  the  other  guests  shall 
partake  of  the  food  provided,  except  as  they  make  terms 
with  him  ?  Does  the  first  man  who  presents  a  ticket  at  the 
door  of  a  theatre,  and  passes  in,  acquire  by  his  priority  the 
right  to  shut  the  doors  and  have  the  performance  go  on 
for  him  alone?  .  .  .  And  to  this  manifest  absurdity  does 
the  recognition  of  the  individual  right  to  land  come  when 
carried  to  its  ultimate  that  any  human  being,  could  he  con- 
centrate in  himself  the  individual  rights  to  the  land  of  any 
country,  could  expel  therefrom  all  the  rest  of  the  inhab- 
itants; and  could  he  concentrate  the  individual  rights 
to  the  whole  surface  of  the  globe,  he  alone  of  all  the 
teeming  population  of  the  earth  would  have  the  right  to 
live."  1 

In  passing,  it  may  be  observed  that  Henry  George  was 
not  the  first  distinguished  writer  to  use  the  illustration 
drawn  from  the  theatre.  Cicero,  St.  Basil,  and  St.  Thomas 
Aquinas  all  employed  it  to  refute  extravagant  conceptions 
of  private  ownership.  In  reply  to  the  foregoing  argument 
of  Henry  George,  we  point  out:  first,  that  the  right  of 
ownership  created  by  first  occupancy  is  not  unlimited,  either 
extensively  or  intensively;  and,  second,  that  the  historical 
injustices  connected  with  private  ownership  have  been  in 
only  a  comparatively  slight  degree  due  to  the  first  occupa- 
tion of  very  large  tracts  of  land.  The  right  of  first  occu- 
pancy does  not  involve  the  right  to  take  a  whole  region  or 
continent,  compelling  all  subsequent  arrivals  to  become 
tenants  of  the  first.  There  seems  to  be  no  good  reason  to 
think  that  the  first  occupant  is  justified  in  claiming  as  his 
own  more  land  than  he  can  cultivate  by  his  own  labour,  or 
with  the  assistance  of  those  who  prefer  to  be  his  employes 
or  his  tenants  rather  than  independent  proprietors.  "  He 
has  not  the  right  to  reserve  for  himself  alone  the  whole 
territory,  but  only  that  part  of  it  which  is  really  useful  to 

1 "  Progress  and  Poverty,"  book  vii,  ch.  i. 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       23 

him,  which  he  can  make  fruitful."  ^  Nor  is  the  right  of 
private  landownership,  on  whatever  title  it  may  rest,  un- 
limited intensively,  that  is,  in  its  powers  or  comprehension. 
Though  a  man  should  have  become  the  rightful  owner  of 
all  the  land  in  a  neighbourhood,  he  would  have  no  moral 
right  to  exclude  therefrom  those  persons  who  could  not 
without  extreme  inconvenience  find  a  living  elsewhere. 
He  would  be  morally  bound  to  let  them  cultivate  it  at  a 
fair  rental.  The  Christian  conception  of  the  intensive 
limitations  of  private  ownership  is  well  exemplified  in  the 
action  of  Pope  Clement  IV,  who  permitted  strangers  to 
occupy  the  third  part  of  any  estate  which  the  proprietor 
refused  to  cultivate  himself.^  Ownership  understood  as 
the  right  to  do  what  one  pleases  with  one's  possessions,  is 
due  partly  to  the  Roman  law,  partly  to  the  Code  Napoleon, 
but  chiefly  to  modern  theories  of  individualism. 

In  the  second  place,  the  abuses  which  have  accompanied 
private  property  in  land  are  very  rarely  traceable  to  abuses 
of  the  right  of  first  occupancy.  The  men  who  have  pos- 
sessed too  much  land,  and  the  men  who  have  used  their 
land  as  an  instrument  of  social  oppression,  have  scarcely 
ever  been  first  occupants  or  the  successors  thereof  through 
derived  titles.  This  is  especially  true  of  modern  abuses, 
and  modern  legal  titles.  In  the  words  of  Herbert  Spencer : 
"  Violence,  fraud,  the  prerogative  of  force,  the  claims  of 
superior  cunning, —  these  are  the  sources  to  which  these 
titles  may  be  traced.  The  original  deeds  were  written  with 
the  sword,  rather  than  with  the  pen :  not  lawyers  but  sol- 
diers were  the  conveyancers:  blows  were  the  current  coin 
given  in  payment;  and  for  seals  blood  was  used  in  prefer- 
ence to  wax."  ^     Not  the  appropriation  of  land  which 

1 "  La  Propriete  Privee,"  par  L.  Garriguet,  I,  62 ;  Paris,  1903. 

2  Cf.  Ardant,  "  Papes  et  Paysans,"  pp.  41,  sq. 

3  "  Social  Statics,"  chap,  ix ;  1850.  Spencer's  retractation,  in  a  later 
edition  of  this  work,  of  his  earlier  views  on  the  right  of  property  in 
land  does  not  affect  the  truth  of  the  description  quoted  in  the  passage 
above. 


24  DISTRIBUTIVE   JUSTICE 

nobody  owned,  but  the  forcible  and  fraudulent  seizure  of 
land  which  had  already  been  occupied,  has  been  one  of  the 
main  causes  of  the  evils  attending  upon  private  landowner- 
ship.  Moreover,  in  England  and  all  other  countries  that 
have  adopted  her  legal  system,  the  title  of  first  occupanc}' 
could  never  be  utilised  by  individuals :  all  unoccupied  land 
was  claimed  by  the  Crown  or  by  the  State,  and  transferred 
thence  to  private  persons  or  corporations.  If  some  indi- 
viduals have  got  possession  of  too  much  land  through  this 
process,  the  State,  not  the  title  of  first  occupancy,  must  bear 
the  blame.  This  is  quite  clear  in  the  history  of  land  tenure 
in  the  United  States  and  Australasia. 

Henry  George's  attack  upon  private  landownership 
through  the  title  of  first  occupancy  is  therefore  ineffective; 
for  he  attributes  to  this  qualities  that  it  does  not  possess, 
and  consequences  for  which  it  is  not  responsible. 

His  Defence  of  the  Title  of  Labour 

Thinking  that  he  has  shattered  the  title  of  first  occu- 
pancy, Henry  George  undertakes  to  set  up  in  its  place  the 
title  of  labour.  "  There  can  be  to  the  ownership  of  any- 
thing no  rightful  title  which  is  not  derived  from  the  title 
of  the  producer,  and  does  not  rest  on  the  natural  right  of 
the  man  to  himself."  ^  The  only  original  title  is  man's 
right  to  the  exercise  of  his  own  faculties ;  from  this  right 
follows  his  right  to  what  he  produces ;  now  man  does  not 
produce  land;  therefore  he  cannot  have  rightful  property 
in  land.  Of  these  four  propositions  the  first  is  a  pure 
assumption,  the  second  is  untrue,  the  third  is  a  truism,  and 
the  fourth  is  as  unfounded  as  the  first.  Dependently  upon 
God,  man  has,  indeed,  a  right  to  himself  and  to  the  exercise 
of  his  own  faculties;  but  this  is  a  right  of  action,  not  of 
property.  By  the  exercise  of  this  right  alone  man  can 
never  produce  anything,  never  become  the  owner  of  any- 
thing.    He  can  produce  only  by  exerting  his  powers  upon 

1 "  Progress  and  Poverty,"  loc.  cit. 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       25 

something  outside  of  himself;  that  is,  upon  the  goods  of 
external  nature.  To  become  the  producer  and  the  owner 
of  a  product,  he  must  first  become  the  owner  of  materials. 
By  what  title  is  he  to  acquire  these  ?  In  one  passage  * 
Henry  George  seems  to  think  that  no  title  is  necessary,  and 
refers  to  the  raw  material  as  an  "  accident,"  while  the 
finished  product  is  the  **  essence,"  declaring  that  "  the  right 
of  private  ownership  attaches  the  accident  to  the  essence, 
and  gives  the  right  of  ownership  to  the  natural  material  in 
which  the  labour  of  production  is  embodied."  Now  this 
solution  of  the  difficulty  is  too  simple  and  arbitrary.  Its 
author  would  have  shrunk  from  applying  it  universally; 
for  example,  to  the  case  of  the  shoemaker  who  produces  a 
pair  of  shoes  out  of  stolen  materials,  or  the  burglar  who 
makes  an  overcoat  more  useful  (and  therefore  performs  a 
task  of  production)  by  transferring  it  from  a  warehouse 
to  his  shivering  back!  Evidently  Henry  George  has  in 
mind  only  raw  material  in  the  strict  sense,  that  which  has 
not  yet  been  separated  from  the  storehouse  of  nature;  for 
he  declares  in  another  place  that  "  the  right  to  the  produce 
of  labour  cannot  be  enjoyed  without  the  free  use  of  the 
opportunities  offered  by  nature."  ^  In  other  words,  man's 
title  to  the  materials  upon  which  he  is  to  exercise  his  facul- 
ties, and  of  which  he  is  to  become  the  owner  by  right  of 
production,  is  the  title  of  gift  conferred  by  nature,  or 
nature's  God. 

Nevertheless  this  title  is  applicable  only  to  those  goods 
that  exist  in  unlimited  abundance,  not  to  those  parts  of  the 
natural  bounty  that  are  scarce  and  possess  economic  value. 
A  general  assumption  by  producers  that  they  were  entitled 
to  take  possession  of  the  gifts  of  nature  indiscriminately 
would  mean  industrial  anarchy  and  civil  war.  Hence 
Henry  George  tells  us  that  the  individual  should  pay  rent 
to  "  the  community  to  satisfy  the  equal  rights  of  all  other 

1 "  Open  Letter  to  Pope  Leo  XIII,"  page  25  of  Vierth's  edition. 
2  "  Progress  and  Poverty,"  loc.  cit. 


26  DISTRIBUTIVE   JUSTICE 

members  of  the  community."  ^  Inasmuch  as  the  individual 
must  pay  this  price  before  he  begins  to  produce,  his  right 
to  the  use  of  natural  opportunities  is  not  "  free,"  nor  does 
his  labour  alone  constitute  a  title  to  that  part  of  them  that 
he  utilises  in  production.  Consequently  labour  does  not 
create  a  right  to  the  concrete  product.  It  merely  gives  the 
producer  a  right  to  the  value  that  he  adds  to  the  raw 
material.  His  right  to  the  raw  material  itself,  to  the  ele- 
ments that  he  withdraws  from  the  common  store,  and 
fashions  into  a  product,  say,  wheat,  lumber,  or  steel,  does 
not  originate  in  the  title  of  labour  but  in  the  title  of  con- 
tract. This  is  the  contract  by  which  in  exchange  for  rent 
paid  to  the  community  he  is  authorised  to  utilise  these 
materials.  Until  he  has  made  this  contract  he  has  mani- 
festly no  full  right  to  the  product  into  which  natural  forces 
as  well  as  his  own  labour  have  entered.  According  to 
Henry  George's  own  statements,  therefore,  the  right  to  the 
product  does  not  spring  from  labour  alone,  but  from  labour 
plus  compensation  to  the  community.  Since  the  contract 
by  which  the  prospective  user  agrees  to  pay  this  compensa- 
tion or  rent  must  precede  his  application  of  labour,  it  in- 
stead of  labour  is  the  original  title.  Since  the  contract  is 
made  with  a  particular  community  for  the  use  of  a  par- 
ticular piece  of  land,  the  title  that  it  conveys  must  derive 
ultimately  from  the  occupation  of  that  land  by  that  com- 
munity,—  or  some  previous  community  of  which  the  pres- 
ent one  is  the  legal  heir.  So  far  as  economically  valuable 
materials  are  concerned,  therefore,  the  logic  of  Henry 
George's  principles  leads  inevitably  to  the  conclusion  that 
the  original  title  of  ownership  is  first  occupancy. 

Even  in  the  case  of  economically  free  goods,  the  original 
title  of  ownership  is  occupancy.  Henry  George  declares 
that  the  traveller  who  has  filled  his  vessels  at  a  free-for-all 
spring  owns  the  water  when  he  has  carried  it  into  a  desert, 

1 "  Progress  and  Poverty,"  loc.  cit. 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       2^ 

by  the  title  of  labour.^  Nevertheless,  in  its  original  place 
this  water  belonged  either  to  the  community  or  to  nobody. 
In  the  former  supposition  it  can  become  the  property  of  the 
traveller  only  through  an  explicit  or  implicit  gift  from  the 
community ;  and  it  is  this  contract,  not  labour,  that  consti- 
tutes his  title  to  the  water.  If  we  assume  that  the  spring 
was  ownerless,  we  see  that  the  labour  of  carrying  a  portion 
of  it  into  the  desert  still  lacks  the  qualifications  of  a  title; 
for  the  abstracted  water  must  have  belonged  to  him  before 
he  began  the  journey.  It  must  have  been  his  from  the 
moment  that  he  separated  it  from  the  spring.  Otherwise 
he  had  no  right  to  take  it  away.  His  labour  of  transport- 
ing it  gave  him  a  right  to  the  utility  thus  added  to  the  water, 
but  not  a  right  to  the  water  when  it  first  found  a  local  habi- 
tation in  his  vessels.  Nor  was  the  labour  of  transferring 
it  from  the  spring  into  his  vessels  the  true  title ;  for  labour 
alone  cannot  create  a  right  to  the  material  upon  which  it  is 
exerted,  as  we  see  in  the  case  of  stolen  objects.  If  it  be 
contended  that  labour  together  with  the  natural  right  to 
use  the  ownerless  goods  of  nature  have  all  the  elements 
of  a  valid  title,  the  assertion  must  be  rejected  as  unprecise 
and  inadequate.  The  right  to  use  ownerless  goods  is  a 
general  and  abstract  right  that  requires  to  become  specific 
and  concrete  through  some  title.  In  the  case  of  water  it  is 
a  right  to  water  in  general,  to  some  water,  but  not  a  right 
to  a  definite  portion  of  the  water  in  this  particular  spring. 
The  required  and  sufficient  title  here  is  that  of  apprehen- 
sion, occupation,  the  act  of  separating  a  portion  from  the 
natural  reservoir.  Therefore,  it  is  first  occupancy  as 
exemplified  in  mere  seizure  of  an  ownerless  good,  not 
labour  in  the  sense  of  productive  activity,  nor  labour  in 
the  sense  of  painful  exertion,  that  constitutes  the  precise 
title  whereby  the  man  acquires  a  right  to  the  water  that  he 
has  put  into  his  cup  or  barrel.  Mere  seizure  is  a  sufficient 
1 "  Open  Letter  to  Pope  Leo  XIII,"  loc.  cit. 


28  DISTRIBUTIVE   JUSTICE 

title  in  all  such  cases  as  that  which  we  are  now  considering, 
simply  because  it  is  a  reasonable  method  of  determining 
and  specifying  ownership.  There  is  no  need  whatever  of 
having  recourse  to  the  concept  of  labour  to  justify  this 
kind  of  property  right.  In  the  present  case,  indeed,  the 
acts  of  apprehension  and  of  productive  labour  (the  labour 
of  dipping  the  water  into  a  vessel  is  productive  inasmuch 
as  the  water  is  more  useful  there  than  in  the  spring)  are  the 
same  physically,  but  they  are  distinct  logically  and  ethically. 
One  is  mere  occupation,  while  the  other  is  production; 
and  ownership  of  a  thing  must  precede,  in  morals  if  not  in 
time,  the  expenditure  upon  it  of  productive  labour. 

"  The  theory  which  bases  the  right  of  property  on  labour 
really  depends  in  the  ultimate  resort  on  the  right  of  pos- 
session and  the  fact  that  it  is  socially  expedient,  and  is 
therefore  upheld  by  the  laws  of  society.  Grotius,  dis- 
cussing this  in  the  old  Roman  days,  pointed  out  that  since 
nothing  can  be  made  except  out  of  pre-existing  matter, 
acquisition  by  means  of  labour  depends,  ultimately,  on 
possession  by  means  of  occupation."  ^ 

Since  man's  right  to  his  faculties  does  not  of  itself  give 
him  a  right  to  exercise  them  upon  material  objects,  pro- 
ductive labour  cannot  of  itself  give  him  a  right  to  the 
product  therefrom  created,  nor  constitute  the  original  title 
of  ownership.  Since  labour  is  not  the  original  title  to 
property,  it  is  not  the  only  possible  title  to  property  in  land. 
Hence  the  fact  that  labour  does  not  produce  land,  has  no 
bearing  on  the  question  of  private  landownership. 

In  passing  it  may  be  observed  that  Henry  George  im- 
plicitly admitted  that  the  argument  from  the  labour  title 
was  not  of  itself  sufficient  to  disprove  the  right  of  private 
property  in  land.  Considering  the  objection,  "  if  private 
property  in  land  be  not  just,  then  private  property  in  the 
products  of  land  is  not  just,  as  the  material  of  these  prod- 
ucts is  taken  from  the  land,"  he  replied  that  the  latter  form 

1  Whittaker,  op.  cit.,  p.  32. 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       29 

of  ownership  "  is  in  reality  a  mere  right  of  temporary  pos- 
session," since  the  raw  material  in  the  products  sooner  or 
later  returns  to  the  "  reservoirs  provided  for  all  .  .  .  and 
thus  the  ownership  of  them  by  one  works  no  injury  to 
others."  -^  But  private  ownership  of  land,  he  continued, 
shuts  out  others  from  the  very  reservoirs.  Here  we  have 
a  complete  abandonment  of  the  principle  which  underlies 
the  labour  argument.  Instead  of  trying  to  show  from  the 
nature  of  the  situation  that  there  is  a  logical  difference 
between  the  two  kinds  of  ownership,  he  shifts  his  ground 
to  a  consideration  of  consequences.  He  makes  the  title  of 
social  utility  instead  of  the  title  of  labour  the  distinguishing 
and  decisive  consideration.  As  we  shall  see  later,  he  is 
wrong  even  on  this  ground;  for  the  fundamental  justifica- 
tion of  private  landownership  is  precisely  the  fact  that  it  is 
the  system  of  land  tenure  most  conducive  to  human  welfare. 
At  present  we  merely  call  attention  to  the  breakdown  in  his 
own  hands  of  the  labour  argument. 

To  sum  up  the  entire  discussion  on  the  original  title  of 
ownership :  Henry  George's  attack  upon  first  occupancy  is 
futile  because  based  upon  an  exaggerated  conception  of  the 
scope  of  private  landownership,  and  upon  a  false  assump- 
tion concerning  the  responsibility  of  that  title  for  the  his- 
torical evils  of  the  system.  His  attempt  to  substitute 
labour  as  the  original  title  is  likewise  unsuccessful,  since 
labour  can  give  a  right  only  to  the  utility  added  to  natural 
materials,  not  to  the  materials  themselves.  Ownership  of 
the  latter  reaches  back  finally  to  occupation.  Whence  it 
follows  that  the  title  to  an  artificial  thing,  such  as  a  hat  or 
coat,  water  taken  from  a  spring,  a  fish  drawn  from  the  sea, 
is  a  joint  or  twofold  title ;  namely,  occupation  and  labour. 
Where  the  product  embodies  scarce  and  economically  valu- 
able raw  material,  occupation  is  usually  prior  to  labour  in 
time;  in  all  cases  it  is  prior  to  labour  logically  and  ethi- 
cally.    Since  labour  is  not  the  original  title,  its  absence  in 

1 "  Open  Letter,"  loc.  cit. 


30  DISTRIBUTIVE   JUSTICE 

the  case  of  land  does  not  leave  that  form  of  property  un- 
justified. The  title  of  first  occupancy  remains.  In  a 
word,  the  one  original  title  of  all  property,  natural  and 
artificial,  is  first  occupancy. 

The  other  arguments  of  Henry  George  against  private 
landownership  are  based  upon  the  assumed  right  of  all 
mankind  to  land  and  land  values,  and  on  the  contention 
that  this  right  is  violated  by  the  present  system  of  tenure. 

The  Right  of  All  Men  to  the  Bounty  of  the  Earth 

"  The  equal  right  of  all  men  to  the  use  of  land  is  as 
clear  as  their  equal  right  to  breathe  the  air  —  it  is  a  right 
proclaimed  by  the  fact  of  their  existence.  For  we  cannot 
suppose  that  some  men  have  a  right  to  be  in  the  world,  and 
others  no  right. 

"If  we  are  here  by  the  equal  permission  of  the  Creator, 
we  are  all  here  with  an  equal  title  to  the  enjoyment  of  his 
bounty  —  with  an  equal  right  to  the  use  of  all  that  nature 
so  impartially  offers.  .  .  .  There  is  in  nature  no  such 
thing  as  a  fee  simple  in  land.  There  is  on  earth  no  power 
which  can  rightfully  make  a  grant  of  exclusive  ownership 
of  land.  If  all  existing  men  were  to  grant  away  their 
equal  rights,  they  could  not  grant  away  the  rights  of  those 
who  follow  them.  For  what  are  we  but  tenants  for  a  day  ? 
Have  we  made  the  earth  that  we  should  determine  the 
rights  of  those  who  after  us  shall  tenant  it  in  their  turn?  "  ^ 

The  right  to  use  the  goods  of  nature  for  the  support  of 
life  is  certainly  a  fundamental  natural  right;  and  it  is  sub- 
stantially equal  in  all  persons.  It  arises,  on  the  one  hand, 
from  man's  intrinsic  worth,  his  essential  needs,  and  his 
final  destiny;  and,  on  the  other  hand,  from  the  fact  that 
nature's  bounty  has  been  placed  by  God  at  the  disposal  of 
all  His  children  indiscriminately.  But  this  is  a  general 
and  abstract  right.  What  does  it  imply  specifically  and  in 
the  concrete  ?     In  the  first  place,  it  includes  the  actual  and 

1 "  Progress  and  Poverty,"  book  vii,  ch.  i. 


ARGUMENTS   AGAINST   PRIVATE  LANDOWNERSHIP       3 1 

continuous  use  of  some  land ;  for  a  man  cannot  support  life 
unless  he  is  permitted  to  occupy  some  portion  of  the  earth 
for  the  purposes  of  working,  and  eating,  and  sleeping. 
Secondly,  it  means  that  in  time  of  extreme  need,  and  when 
more  orderly  methods  are  not  available,  a  man  has  the  right 
to  seize  sufficient  goods,  natural  or  produced,  public  or  pri- 
vate, to  support  life.  So  much  is  admitted  and  taught  by 
all  Catholic  authorities,  and  probably  by  all  other  authori- 
ties. Furthermore,  the  abstract  right  in  question  seems 
very  clearly  to  include  the  concrete  right  to  obtain  on  rea- 
sonable conditions  at  least  the  requisites  of  a  decent  liveli- 
hood; for  example,  by  direct  access  to  a  piece  of  land,  or 
in  return  for  a  reasonable  amount  of  useful  labour.  All 
of  these  particular  rights  are  equally  valid  in  all  persons. 

Does  the  equal  right  to  use  the  bounty  of  nature  include 
the  right  to  equal  shares  of  land,  or  land  values,  or  land 
advantages?  Since  the  resources  of  nature  have  been 
given  to  all  men  in  general,  and  since  human  nature  is  spe- 
cifically and  juridically  equal  in  all,  have  not  all  persons 
the  right  to  share  equally  in  these  resources?  Suppose 
that  some  philanthropist  hands  over  to  one  hundred  per- 
sons an  uninhabited  island,  on  condition  that  they  shall 
divide  it  among  themselves  with  absolute  justice.  Are 
they  not  obliged  to  divide  it  equally?  On  what  ground 
can  any  person  claim  or  be  awarded  a  larger  share  than 
his  fellows?  None  is  of  greater  intrinsic  worth  than  an- 
other, nor  has  any  one  made  efforts,  or  sacrifices,  or  prod- 
ucts which  will  entitle  him  to  exceptional  treatment.  The 
correct  principle  of  distribution  would  seem  to  be  absolute 
equality,  except  in  so  far  as  it  may  be  modified  on  account 
of  varying  needs,  and  varying  capacities  for  social  service. 
In  any  just  distribution  account  must  be  taken  of  differ- 
ences in  needs  and  capacities;  for  it  is  not  just  to  treat 
men  as  equal  in  those  respects  in  which  they  are  unequal, 
nor  is  it  fair  to  deprive  the  community  of  those  social  ben- 
efits which  can  be  obtained  only  by  giving  exceptional  re- 


32  DISTRIBUTIVE   JUSTICE 

wards  for  exceptional  services.  The  same  amount  of  food 
allotted  to  two  persons  might  leave  one  hungry  and  the 
other  sated;  the  same  amount  of  land  assigned  to  two  per- 
sons might  tempt  the  one  to  wastefulness  and  discourage 
the  other.  To  be  sure,  the  factor  of  exceptional  capacity 
should  not  figure  in  the  distribution  until  all  persons  had 
received  that  measure  of  natural  goods  which  was  in  each 
case  sufficient  for  a  decent  livelihood.  For  the  funda- 
mental justification  of  any  distribution  is  to  be  sought  in 
human  needs;  and  among  human  needs  the  most  deserv- 
ing and  the  most  urgent  are  those  which  must  be  satisfied 
as  a  prerequisite  to  right  and  reasonable  life. 

Now  it  is  true  that  private  ownership  of  land  has  no- 
where realised  this  principle  of  proportional  equality  and 
proportional  justice.  No  such  result  is  possible  in  a  sys- 
tem that,  in  addition  to  other  difficulties,  would  be  required 
to  make  a  new  distribution  at  every  birth  and  at  every 
death.  Private  ownership  of  land  can  never  bring  about 
ideal  justice  in  distribution.  Nevertheless  it  is  not  neces- 
sarily out  of  harmony  with  the  demands  of  practical  jus- 
tice. A  community  that  lacks  either  the  knowledge  or  the 
power  to  establish  the  ideal  system  is  not  guilty  of  actual 
injustice  because  of  this  failure.  In  such  a  situation  the 
proportionally  equal  rights  of  all  men  to  the  bounty  of  na- 
ture are  not  actual  rights.  They  are  conditional,  or  hypo- 
thetical, or  suspended.  At  best  they  have  no  more  moral 
validity  than  the  right  of  a  creditor  to  a  loan  that,  owing 
to  the  untimely  death  of  the  debtor,  he  can  never  recover. 
In  both  cases  it  is  misleading  to  talk  of  injustice ;  for  this 
term  always  implies  that  some  person  or  community  is 
guilty  of  some  action  which  could  have  been  avoided.  The 
system  of  private  landownership  is  not,  indeed,  perfect; 
but  this  is  not  exceptional  in  a  world  where  the  ideal  is 
never  attained,  and  all  things  are  imperfect.  Henry 
George  declares  that  "  there  is  on  earth  no  power  which 
can  rightfully  make  a  grant  of  exclusive  ownership  in 


ARGUMENTS  AGAINST   PRIVATE   LANDOWNERSHIP       33 

land  " ;  but  what  would  he  have  a  community  do  which 
has  never  heard  of  his  system?  Introduce  some  crude 
form  of  communism,  or  refrain  from  using  the  land  at  all, 
and  permit  the  people  to  starve  to  death  in  the  interests  of 
ideal  justice?  Evidently  such  a  community  must  make 
grants  of  exclusive  ownership,  and  these  will  be  as  valid 
in  reason  and  in  morals  as  any  other  act  that  is  subject  to 
human  limitations  which  are  at  the  time  irremovable. 

Perhaps  the  Single  Taxer  would  admit  the  force  of  the 
foregoing  argument.  He  might  insist  that  the  titles  given 
by  the  State  in  such  conditions  were  not  exclusive  grants 
in  the  strict  sense,  but  were  valid  only  until  a  better  sys- 
tem could  be  set  up,  and  the  people  put  in  possession  of 
their  natural  heritage.  Let  us  suppose,  then,  that  a  nation 
were  shown  "  a  more  excellent  way."  Suppose  that  the 
people  of  the  United  States  set  about  to  establish  Henry 
George's  system  in  the  way  that  he  himself  advocated. 
They  would  forthwith  impose  upon  all  land  an  annual  tax 
equivalent  to  the  annual  rent.  What  would  be  the  effect 
upon  private  land-incomes,  and  private  land-wealth  ?  Since 
the  first  would  be  handed  over  to  the  State  in  the  form  of 
a  tax,  the  second  would  utterly  disappear.  For  the  value 
of  land,  like  the  value  of  any  other  economic  good,  depends 
upon  the  utilities  that  it  embodies  or  produces.  Whoever 
controls  these  will  control  the  market  value  of  the  land  it- 
self. No  man  will  pay  anything  for  a  revenue-producing 
property  if  some  one  else,  for  example,  the  State,  is  for- 
ever to  take  the  revenue.  The  owner  of  a  piece  of  land 
which  brings  him  an  annual  revenue  or  rent  of  one  hun- 
dred dollars,  will  not  find  a  purchaser  for  it  if  the  State 
appropriates  the  one  hundred  dollars  in  the  form  of  a  tax 
that  is  to  be  levied  year  after  year  for  all  time.  On  the 
assumption  that  the  revenue  represents  a  selling  value  of 
two  thousand  dollars,  the  private  owner  will  be  worth  that 
much  less  after  the  introduction  of  the  new  system. 

Henry  George  defends  this  proceeding  as  emphatically 


34  DISTRIBUTIVE  JUSTICE 

just,  and  denies  the  justice  of  compensating  the  private 
owners.  In  the  chapter  of  "  Progress  and  Poverty " 
headed,  "  Claim  of  Land  Owners  to  Compensation,"  he  de- 
clares that  "  private  property  in  land  is  a  bold,  bare,  enor- 
mous wrong,  like  that  of  chattel  slavery  " ;  and  against 
Mill's  statement  that  land  owners  have  a  right  to  rent  and 
to  the  selling  value  of  their  holdings,  he  exclaims:  "If 
the  land  of  any  country  belong  to  the  people  of  that  coun- 
try, what  right,  in  morality  and  justice,  have  the  individuals 
called  land  owners  to  the  rent?  If  the  land  belong  to  the 
people,  why  in  the  name  of  morality  and  justice  should  the 
people  pay  its  salable  value  for  their  own  ?  "  ^ 

Here,  then,  we  have  the  full  implication  of  the  Georgean 
principle  that  private  property  in  land  is  essentially  unjust. 
It  is  not  merely  imperfect, —  tolerable  while  unavoidable. 
When  it  can  be  supplanted  by  the  right  system,  its  in- 
equalities must  not  continue  under  another  form.  If  in- 
equalities are  continued  through  the  compensation  of  pri- 
vate owners,  individuals  are  still  hindered  from  enjoying 
their  equal  rights  to  land,  and  the  State  becomes  guilty  of 
formal  and  culpable  injustice.  The  titles  which  the  State 
formerly  guaranteed  to  the  pfivate  owners  did  not  have  in 
morals  the  perpetual  validity  which  they  professed  to  have. 
Since  the  State  is  not  the  owner  of  the  land,  it  was  morally 
powerless  to  create  or  sanction  titles  of  this  character. 
Even  if  all  the  citizens  at  any  given  time  had  deliberately 
transferred  the  necessary  authorisation  to  the  State,  "  they 
could  not,"  in  the  words  of  Henry  George,  "  grant  away 
the  right  of  those  who  follow  them."  The  individual's 
right  to  land  is  innate  and  natural,  not  civil  or  social.  The 
author  of  "  Progress  and  Poverty  "  attributes  to  the  in- 
dividual's common  right  to  land  precisely  the  same  absolute 
character  that  Father  Liberatore  predicates  of  the  right  to 
become  a  private  land  owner.^     In  the  view  of  Henry 

1  Cf.  chapter  entitled  "  Compensation  "  in  "  A  Perplexed  Philoso- 
pher." 

2  Cf.  "  Principles  of  Political  Economy,"  1891,  p.  130. 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       35 

George,  the  State  is  merely  the  trustee  of  the  land,  having 
the  duty  of  distributing  its  benefits  and  values  so  as  to 
make  effective  the  equal  rights  of  all  individuals.  Conse- 
quently, the  legal  titles  of  private  ownership  which  it 
creates  or  sanctions  are  valid  only  so  long  as  nothing  better 
is  available.  At  best  such  titles  have  no  greater  moral 
force  than  the  title  by  which  an  innocent  purchaser  holds 
a  stolen  watch;  and  the  persons  who  are  thereby  deprived 
of  their  proper  shares  of  land  benefits,  have  the  same  right 
to  recover  them  from  the  existing  private  owners  that  the 
watch-owner  has  to  recover  his  property  from  the  innocent 
purchaser.  Hence  the  demand  for  compensation  has  no 
more  merit  in  the  one  case  than  in  the  other. 

To  the  objection  that  the  civil  laws  of  many  civilised 
countries  would  permit  the  innocent  purchaser  of  the  watch 
to  retain  it,  provided  that  sufficient  time  had  elapsed  to 
create  a  title  of  prescription,  the  Single  Taxer  would  reply 
that  the  two  kinds  of  goods  are  not  on  the  same  moral  basis 
in  all  respects.  He  would  contend  that  the  natural  herit- 
age of  the  race  is  too  valuable,  and  too  important  for 
human  welfare  to  fall  under  the  title  of  prescription. 

To  put  the  matter  briefly,  then,  Henry  George  contends 
that  the  individual's  equal  right  to  land  is  so  much  supe- 
rior to  the  claim  of  the  private  owner  that  the  latter  must 
give  way,  even  when  it  represents  an  expenditure  of  money 
or  other  valuable  goods.  The  average  opponent  does  not 
seem  to  realise  the  full  force  of  the  impression  which  this 
theory  makes  upon  the  man  who  overemphasises  the  innate 
rights  of  men  to  a  share  in  the  gifts  of  nature.  Let  us  see 
whether  this  right  has  the  absolute  and  overpowering  value 
which  is  attributed  to  it  by  Henry  George. 

In  considering  this  question,  the  supremely  important 
fact  to  be  kept  in  mind  is  that  the  natural  right  to  land  is 
not  an  end  in  itself.  It  is  not  a  prerogative  that  inheres 
in  men,  regardless  of  its  purposes  or  effects.  It  has  valid- 
ity only  in  so  far  as  it  promotes  individual  and  social  wel- 


36  DISTRIBUTIVE  JUSTICE 

fare.  As  regards  individual  welfare,  we  must  bear  in 
mind  that  this  phrase  includes  the  well  being  of  all  persons, 
of  those  who  do  as  well  as  of  those  who  do  not  at  present 
enjoy  the  benefits  of  private  landownership.  Consequently 
the  proposal  to  restore  to  the  "  disinherited  "  the  use  of 
their  land  rights  must  be  judged  by  its  effects  upon  the 
welfare  of  all  persons.  If  existing  landowners  are  not 
compensated  they  are  deprived,  in  varying  amounts,  of  the 
conditions  of  material  well  being  to  which  they  have  be- 
come accustomed,  and  are  thereby  subjected  to  varying  de- 
grees of  positive  inconvenience  and  hardship.  The  asser- 
tion that  this  loss  would  be  offset  by  the  moral  gain  in  al- 
truistic feelings  and  consciousness,  may  be  passed  over  as 
applying  to  a  different  race  of  beings  from  those  who 
would  be  despoiled.  The  hardship  is  aggravated  consid- 
erably by  the  fact  that  very  many  of  the  dispossessed  pri- 
vate owners  have  paid  the  full  value  of  their  land  out  of 
the  earnings  of  labour  or  capital,  and  that  all  of  them  have 
been  encouraged  by  society  and  the  State  to  regard  landed 
property  in  precisely  the  same  way  as  any  other  kind  of 
property.  In  the  latter  respect  they  are  not  in  the  same 
position  as  the  innocent  purchaser  of  the  stolen  watch ;  for 
they  have  never  been  warned  by  society  that  the  land  might 
have  been  virtually  stolen,  or  that  the  supposedly  rightful 
claimants  might  some  day  be  empowered  by  the  law  to  re- 
cover possession.  On  the  other  hand,  the  persons  who 
own  no  land  under  the  present  system,  the  persons  who  are 
deprived  of  their  "birthright,"  suffer  no  such  degree  of 
hardship  when  they  are  continued  in  that  condition.  They 
are  kept  out  of  something  which  they  have  never  possessed, 
which  they  have  never  hoped  to  get  by  any  such  easy 
method,  and  from  which  they  have  not  been  accustomed  to 
derive  any  benefit.  To  prolong  this  condition  is  not  to 
inflict  upon  them  any  new  or  positive  inconvenience.  Evi- 
dently their  welfare  and  claims  in  the  circumstances  are 
not  of  the  same  moral  importance  as  the  welfare  and  claims 


ARGUMENTS   AGAINST    PRIVATE  LANDOWNERSHIP       37 

of  persons  who  would  be  called  upon  to  suffer  the  loss  of 
goods  already  possessed  and  enjoyed,  and  acquired  with 
the  full  sanction  of  society. 

Henry  George  is  fond  of  comparing  the  private  owner 
of  land  with  the  slave  owner,  and  the  landless  man  with 
the  man  enslaved;  but  there  is  a  world  of  difference  be- 
tween their  respective  positions  and  moral  claims.  Lib- 
erty is  immeasurably  more  important  than  land,  and  the 
hardship  suffered  by  the  master  when  he  is  compelled  to 
free  the  slave  is  immeasurably  less  than  that  endured  by 
the  slave  who  is  forcibly  detained  in  bondage.  Moreover, 
the  moral  sense  of  mankind  recognises  that  it  is  in  accord- 
ance with  equity  to  compensate  slave  owners  when  the 
slaves  are  legally  emancipated.  Infinitely  stronger  is  the 
claim  of  the  landowner  to  compensation. 

If  the  Georgeite  replies  that  the  landless  man  is  at  pres- 
ent kept  out  of  something  to  which  he  has  a  right,  while 
confiscation  would  take  from  the  private  owner  something 
which  does  not  really  belong  to  him,  the  rejoinder  must  be 
that  this  assertion  begs  the  question.  The  question  is  like- 
wise begged  when  the  unreasonable  defender  of  private 
property  declares  that  the  right  of  the  landless  is  vague 
and  undetermined,  and  therefore  morally  inferior  to  tlie 
determinate  and  specific  right  of  the  individual  landowner. 
This  is  precisely  the  question  to  be  solved.  Does  the  ab- 
stract right  of  the  landless  man  become  a  concrete  right 
which  is  so  strong  as  to  justify  confiscation?  Is  his  nat- 
ural right  valid  against  the  acquired  right  of  the  private 
proprietor?  These  questions  can  be  answered  intelligently 
only  by  applying  the  test  of  human  welfare,  individual  and 
social.  To  say  that  land  of  its  very  nature  is  not  morally 
susceptible  of  private  ownership,  is  to  make  an  easy  asser- 
tion that  may  be  as  easily  denied.  To  interpret  man's 
natural  right  to  land  by  any  other  standard  than  human 
welfare,  is  to  make  of  it  a  fetish,  not  a  thing  of  reason. 
Henry  George  himself  seemed  to  recognise  this  when  he 


38  DISTRIBUTIVE   JUSTICE 

wrote  that  wonderfully  eloquent  but  overdrawn  and  one- 
sided description  of  the  effects  of  private  ownership  which 
occurs  in  the  chapter  entitled,  "  Claim  of  Landowners  to 
Compensation,"  ^ 

When  we  say  that  human  welfare  is  the  final  deter- 
minant of  the  right  to  land,  we  understand  this  phrase  in 
the  widest  possible  sense.  To  divide  the  goods  of  the  idle 
rich  among  the  deserving  poor,  might  be  temporarily  bene- 
ficial to  both  these  classes,  but  the  more  remote  and  endur- 
ing consequences  would  be  individually  and  socially  dis- 
astrous. To  restore  a  legacy  to  persons  who  had  been  de- 
frauded of  it  when  very  young,  would  probably  cause  more 
hardship  to  the  swindler  than  the  heirs  would  have  suf- 
fered had  there  been  no  restitution  ;  nevertheless  the  larger 
view  of  human  welfare  requires  that  the  legacy  should  be 
restored.  When,  however,  two  or  three  generations  have 
been  kept  out  of  their  inheritance,  the  civil  law  permits  the 
children  of  the  swindler  to  retain  the  property  by  the  title 
of  prescription ;  and  for  precisely  the  same  reason,  human 
welfare. 

The  social  consequences  of  the  confiscation  of  rent  and 
land  values,  would  be  even  more  injurious  than  those  fall- 
ing upon  the  individuals  despoiled.  Social  peace  and  order 
would  be  gravely  disturbed  by  the  protests  and  opposition 
of  the  landowners,  while  the  popular  conception  of  prop- 
erty rights,  and  of  the  inviolability  of  property,  would  be 
greatly  weakened,  if  not  entirely  destroyed.  The  average 
man  would  not  grasp  or  seriously  consider  the  Georgean 
distinction  between  land  and  other  kinds  of  property  in 
this  connection.  He  would  infer  that  purchase,  or  in- 
heritance, or  bequest,  or  any  other  title  having  the  imme- 
morial sanction  of  the  State,  does  not  create  a  moral  right 
to  movable  goods  any  more  than  to  land.  This  would  be 
especially  likely  in  the  matter  of  capital.  Why  should  the 
capitalist,  who  is  no  more  a  worker  than  the  landowner,  be 
1 "  Progress  and  Poverty." 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       39 

permitted  to  extract  revenue  from  his  possessions?  In 
both  cases  the  most  significant  and  practical  feature  is  that 
one  class  of  men  contributes  to  another  class  an  annual 
payment  for  the  use  of  socially  necessary  productive 
goods.  If  rent-confiscation  would  benefit  a  large  number 
of  people,  why  not  increase  the  number  by  confiscating  in- 
terest ?  Indeed,  the  proposal  to  confiscate  rent  is  so  abhor- 
rent to  the  moral  sense  of  the  average  man  that  it  could 
never  take  place  except  in  conditions  of  revolution  and 
anarchy.  If  that  day  should  ever  arrive  the  policy  of  con- 
fiscation would  not  stop  with  land. 

The  Alleged  Right  of  the  Community  to  Land  Values 

In  the  foregoing  pages  we  have  confined  our  attention 
to  the  Georgean  principle  which  bases  men's  common  right 
to  land  and  rent  upon  their  common  nature,  and  their  com- 
mon claims  to  the  material  gifts  of  the  Creator.  Another 
argument  against  private  ownership  takes  this  form : 
"  Consider  what  rent  is.  It  does  not  arise  spontaneously 
from  the  soil ;  it  is  due  to  nothing  that  the  landowners  have 
done.  It  represents  a  value  created  by  the  whole  commu- 
nity. .  .  .  But  rent,  the  creation  of  the  whole  community, 
necessarily  belongs  to  the  whole  community."  ^ 

Before  taking  up  the  main  contention  in  this  passage,  let 
us  notice  two  incidental  points.  If  all  rent  be  due  to  the 
community  by  the  title  of  social  production,  why  does 
Henry  George  defend  at  such  length  the  title  of  birthright? 
If  the  latter  title  does  not  extend  to  rent  it  is  restricted  to 
land  which  is  so  plentiful  as  to  yield  no  rent.  Since  the 
owners  or  holders  of  such  land  rarely  take  the  trouble  to 
exclude  any  one  from  it,  the  right  in  question,  the  inborn 
right,  has  not  much  practical  value.  Probably,  however, 
the  words  quoted  above  ought  not  to  be  interpreted  as  ex- 
cluding the  title  of  birthright.     In  that  case,  the  meaning 

1 "  Progress  and  Poverty,"  book  vii,  ch.  iii. 


40  DISTRIBUTIVE   JUSTICE 

would  be  that  rent  belongs  to  the  community  by  the  title  of 
production,  as  well  as  by  the  congenital  title. 

The  second  preliminary  consideration  is  that  the  commu- 
nity does  not  create  all  land  values  nor  all  rent.  These 
things  are  as  certainly  due  to  nature  as  to  social  action. 
In  no  case  can  they  be  attributed  exclusively  to  one  factor. 
Land  that  has  no  natural  qualities  or  capacities  suitable  for 
the  satisfaction  of  human  wants  will  never  have  value  or 
yield  rent,  no  matter  what  society  does  in  connection  with 
it :  the  richest  land  in  the  world  will  likewise  remain  value- 
less, until  it  is  brought  into  relation  with  society,  with  at 
least  two  human  beings.  If  Henry  George  merely  means 
to  say  that,  without  the  presence  of  the  community,  land 
will  not  produce  rent,  he  is  stating  something  that  is  per- 
fectly obvious,  but  it  is  not  peculiar  to  land.  Manufac- 
tured products  would  have  no  value  outside  of  society,  yet 
no  one  maintains  that  their  value  is  all  created  by  social 
action.  Although  the  value  of  land  is  always  due  to  both 
nature  and  society,  for  practical  purposes  we  may  cor- 
rectly attribute  the  value  of  a  particular  piece  of  land  pre- 
dominantly to  nature,  or  predominantly  to  society.  When 
three  tracts,  equally  distant  from  a  city,  and  equally  af- 
fected by  society  and  its  activities,  have  different  values 
because  one  is  fit  only  for  grazing,  while  the  second  pro- 
duces large  crops  of  wheat,  and  the  third  contains  a  rich 
coal  mine,  their  relative  values  are  evidently  due  to  nature 
rather  than  to  society.  On  the  other  hand,  the  varying 
values  of  two  equally  fertile  pieces  of  land  unequally  dis- 
tant from  a  city,  must  be  ascribed  primarily  to  social  ac- 
tion. In  general,  it  is  probably  safe  to  say  that  almost  all 
the  value  of  land  in  cities,  and  the  greater  part  of  the  value 
of  land  in  thickly  settled  districts,  is  specifically  due  to  social 
action  rather  than  to  differences  in  fertility.  Neverthe- 
less, it  remains  true  that  the  value  of  every  piece  of  land 
arises  partly  from  nature,  and  partly  from  society;  but  it 
is  impossible  to  say  in  what  proportion. 


ARGUMENTS  AGAINST   PRIVATE   LANDOWNERSHIP      4I 

Our  present  concern  is  with  those  values  and  rents  which 
are  to  be  attributed  to  social  action.  These  cannot  be 
claimed  by  any  person,  nor  by  any  community,  in  virtue  of 
the  individual's  natural  right  to  the  bounty  of  nature. 
Since  they  are  not  included  among  the  ready  made  gifts  of 
God,  they  are  no  part  of  man's  birthright.  If  they  belong 
to  all  the  people  the  title  to  them  must  be  sought  in  some 
historical  fact,  some  fact  of  experience,  some  social  fact. 
According  to  Henry  George,  the  required  title  is  found  in 
the  fact  of  production.  Socially  created  land  values  and 
rents  belong  to  the  community  because  the  community,  not 
the  private  proprietor,  has  produced  them.  Let  us  see  in 
what  sense  the  community  produces  the  social  value  of 
land. 

In  the  first  place,  this  value  is  produced  by  the  commu- 
nity in  two  different  senses  of  the  word  community,  namely, 
as  a  civil,  corporate  entity,  and  as  a  group  of  individuals 
who  do  not  form  a  moral  unit.  Under  the  first  head  must 
be  placed  a  great  deal  of  the  value  of  land  in  cities;  for 
example,  that  which  arises  from  municipal  institutions  and 
improvements,  such  as,  fire  and  police  protection,  water 
works,  sewers,  paved  streets,  and  parks.  On  the  other 
hand,  a  considerable  part  of  land  values  both  within  and 
without  cities  is  due,  not  to  the  community  as  a  civil  body, 
but  to  the  community  as  a  collection  of  individuals  and 
groups  of  individuals.  Thus,  the  erection  and  maintenance 
of  buildings,  the  various  economic  exchanges  of  goods  and 
labour,  the  superior  opportunities  for  social  intercourse 
and  amusement  which  characterise  a  city,  make  the  land  of 
the  city  and  its  environs  more  valuable  than  land  at  a  dis- 
tance. While  the  activities  involved  in  these  economic 
and  "  social "  facts  and  relations  are,  indeed,  a  social  not 
an  individual  product,  they  are  the  product  of  small,  tem- 
porary, and  shifting  groups  within  the  community.  They 
are  not  the  activities  of  the  community  as  a  moral  whole. 
For  example,  the  maintenance  of  a  grocery  business  im- 


42  DISTRIBUTIVE   JUSTICE 

plies  a  series  of  social  relations  and  agreements  between 
the  grocer  and  his  customers;  but  none  of  these  transac- 
tions is  participated  in  by  the  community  acting  as  a  com- 
munity. Consequently  such  actions  and  relations,  and  the 
land  values  to  which  they  give  rise  are  not  due  to,  are  not 
the  products  of  the  community  as  a  unit,  as  a  moral  body, 
as  an  organic  entity.  What  is  true  of  the  land  values 
created  by  the  grocery  business  applies  to  the  values  which 
are  due  to  other  economic  institutions  and  relations,  as 
well  as  to  those  values  which  arise  out  of  the  purely 
"  social  "  activities  and  advantages.  If  these  values  are  to 
go  to  their  producers  they  must  be  taken,  in  various  pro- 
portions, by  the  different  small  groups  and  the  various  in- 
dividuals whose  actions  and  transactions  have  been  directly 
responsible. 

To  distribute  these  values  among  the  producers  thereof 
in  proportion  to  the  productive  contribution  of  each  person 
is  obviously  impossible.  How  can  it  be  known,  for  ex- 
ample, what  portion  of  the  increase  in  the  value  of  a  city's 
real  estate  during  a  given  year  is  due  to  the  merchants,  the 
manufacturers,  the  railroads,  the  labourers,  the  professional 
classes,  or  the  city  as  a  corporation?  The  only  practical 
method  is  for  the  city  or  other  political  unit  to  act  as  the 
representative  of  all  its  members,  appropriate  the  increase 
in  value,  and  distribute  it  among  the  citizens  in  the  form 
of  public  services,  institutions,  and  improvements.  Assum- 
ing that  the  socially  produced  value  of  land  ought  to  go  to 
its  social  producer  rather  than  to  the  individual  proprietor, 
this  method  of  public  appropriation  and  disbursement 
would  seem  to  be  the  nearest  approximation  to  practical 
justice  that  is  available. 

Is  the  assumption  correct?  Do  the  socially  produced 
land  values  necessarily  belong  to  the  producer,  society? 
Does  not  the  assumption  rest  upon  a  misconception  of  the 
moral  validity  of  production  as  a  canon  of  distribution? 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       45 

Let  US  examine  some  of  the  ways  in  which  values  are  pro- 
duced. 

The  man  who  converts  leather  and  other  suitable  raw 
materials  into  a  pair  of  shoes,  increases  the  utility  of  these 
materials,  and  in  normal  market  conditions  increases  their 
value.  In  a  certain  sense  he  has  created  value,  and  he  is 
universally  acknowledged  to  have  a  right  to  this  product. 
Similarly  the  man  who  increases  the  utility  and  value  of 
land  by  fertilising,  irrigating,  or  draining  it,  is  conceded 
the  benefit  of  these  improvements  by  the  title  of  produc- 
tion. 

But  value  may  be  increased  by  mere  restriction  of  sup- 
ply, and  by  mere  increase  in  demand.  If  a  group  of  men 
get  control  of  the  existing  supply  of  wheat  or  cotton,  they 
can  artificially  raise  the  price,  thereby  producing  value  as 
effectively  as  the  shoemaker  or  the  farmer.  If  a  syndi- 
cate of  speculators  gets  possession  of  all  the  land  of  a  cer- 
tain quality  in  a  community,  they  can  likewise  increase  its 
value,  produce  new  value.  If  a  few  powerful  leaders  of 
fashion  decide  to  adopt  a  certain  style  of  millinery,  their 
action  and  example  will  effect  an  increase  in  the  demand 
for  and  the  value  of  that  kind  of  goods.  Yet  none  of 
these  producers  of  value  are  regarded  as  having  a  moral 
right  to  their  product. 

When  we  turn  to  what  is  called  the  social  creation  of 
land  values,  we  find  that  it  takes  two  forms.  It  always 
implies  increase  of  social  demand;  but  the  latter  may  be 
either  purely  subjective,  reflecting  merely  the  desires  and 
power  of  the  demanders  themselves,  or  it  may  have  an  ob- 
jective basis  connected  with  the  land.  In  the  first  case  it 
may  be  due  solely  to  an  increase  of  population.  Within 
the  last  few  years,  agricultural  land  which  is  no  more  fer- 
tile nor  any  better  situated  with  regard  to  markets  or  other 
social  advantages  than  it  was  thirty  years  ago,  has  risen  in 
value  because  its  products  have  risen  in  value.     Its  prod- 


44  DISTRIBUTIVE   JUSTICE 

ucts  have  become  dearer  because  population,  and  there- 
fore demand,  have  grown  faster  than  agricultural  produc- 
tion. Merely  by  increasing  its  wants  the  population  has 
produced  land  values;  but  it  has  obviously  no  more  right 
to  them  than  have  the  leaders  of  fashion  to  the  enhanced 
value  which  they  have  given  to  feminine  headgear.  On  the 
other  hand,  the  increased  demand  for  land,  and  the  conse- 
quent increase  in  its  value,  are  frequently  attributable  spe- 
cifically to  changes  connected  with  the  land  itself.  They 
are  changes  which  affect  its  utility  rather  than  its  scarcity. 
The  farmer  who  irrigates  desert  land  increases  its  utility, 
as  it  were,  intrinsically.  The  community  that  establishes  a 
city  increases  the  utility  of  the  land  therein  and  thereabout 
extrinsically.  New  relations  are  introduced  between  that 
land  and  certain  desirable  social  institutions.  Land  that 
was  formerly  useful  only  for  agriculture  becomes  profitable 
for  a  factory  or  a  store.  Through  its  new  external  rela- 
tions, the  land  acquires  new  utility;  or  better,  its  latent  and 
potential  uses  have  become  actual.  Now  these  new  rela- 
tions, these  utility-creating  and  value-creating  relations, 
have  been  established  by  society,  in  its  corporate  capacity 
through  civil  institutions  and  activities,  and  in  its  non-cor- 
porate capacity  through  the  economic  and  "  social  "  (in  the 
narrower  "  society  "  sense)  activities  of  groups  and  indi- 
viduals. In  this  sense,  then,  the  community  has  created 
the  increased  land  values.  Has  it  a  strict  right  to  them? 
a  right  so  rigorous  and  exact  that  private  appropriation  of 
them  is  unjust? 

As  we  have  just  seen,  men  do  not  admit  that  mere  pro- 
duction of  value  constitutes  a  title  of  ownership.  Neither 
the  monopolist  who  increases  value  by  restricting  supply, 
nor  the  pace-makers  of  fashion,  who  increase  value  by 
merely  increasing  demand,  are  regarded  as  possessing  a 
moral  right  to  the  value  that  they  have  "  created."  It  is 
increase  of  utility,  and  not  either  actual  or  virtual  increase 
of  scarcity  to  which  men  attribute  a  moral  claim.     Why  do 


ARGUMENTS  AGAINST   PRIVATE   LANDOWNERSHIP       45 

men  assign  these  different  ethical  qualities  to  the  produc- 
tion of  value  ?  Why  has  the  shoemaker  a  right  to  the  value 
that  he  adds  to  the  raw  material  in  making  a  pair  of  shoes  ? 
What  is  the  precise  basis  of  his  right  ?  It  cannot  be  labour 
merely;  for  the  cotton  monopolist  has  laboured  in  getting 
his  corner  on  cotton.  It  cannot  be  the  fact  that  the  shoe- 
maker's labour  is  socially  useful;  for  a  chemist  might 
spend  laborious  days  and  nights  producing  water  from  its 
component  elements,  and  find  his  product  a  drug  on  the 
market.  Yet  he  would  have  no  reasonable  ground  of  com- 
plaint. Why,  then,  is  it  reasonable  for  the  shoemaker  to 
require,  why  has  he  a  right  to  require  payment  for  the 
utilities  that  he  produces?  Because  men  want  to  use  his 
products,  and  because  they  have  no  right  to  require  him  to 
serve  them  without  compensation.  He  is  morally  and 
juridically  their  equal,  and  has  the  same  right  as  they  to 
have  access  on  reasonable  terms  to  the  earth  and  the  earth's 
possibilities  of  a  livelihood.  Being  thus  equal  to  his  fel- 
lows, he  is  under  no  obligation  to  subordinate  himself  to 
them  by  becoming  a  mere  instrument  for  their  welfare. 
To  assume  that  he  is  obliged  to  produce  socially  useful 
things  without  remuneration,  is  to  assume  that  all  these 
propositions  are  false;  it  is  to  assume  that  his  life  and  per- 
sonality and  personal  development  are  of  no  intrinsic  im- 
portance, and  that  his  pursuit  of  the  essential  ends  of  life 
has  no  meaning  except  in  so  far  as  may  be  conducive  to  his 
function  as  an  instrument  of  production.  In  a  word,  the 
ultimate  basis  of  the  producer's  right  to  his  product,  or  its 
value,  is  the  fact  that  this  is  the  only  way  in  which  he  can 
get  his  just  share  of  the  earth's  goods,  and  of  the  means  of 
life  and  personal  development.  His  right  to  compensation 
does  not  rest  on  the  mere  fact  of  value-production. 

As  a  producer  of  land  values,  the  community  is  not  on 
the  same  moral  ground  with  the  shoemaker.  Its  productive 
action  is  indirect  and  extrinsic,  instead  of  direct  and  in- 
trinsic, and  is  merely  incidental  to  its  principal  activities 


46  DISTRIBUTIVE   JUSTICE 

and  purposes.  Land  values  are  a  by-product  which  do  not 
require  the  community  to  devote  thereto  a  single  moment  of 
time  or  a  single  ounce  of  effort.  The  activities  of  which 
land  values  are  a  by-product,  have  already  been  remuner- 
ated in  the  price  paid  to  the  wage-earner  for  his  labour, 
the  physician  for  his  services,  the  manufacturer  and  the 
merchant  for  their  wares,  and  the  municipal  corporation  in 
the  form  of  taxes.  On  what  ground  can  the  community, 
or  any  part  of  it,  set  up  a  claim  in  strict  justice  to  the  in- 
creased land  values?  The  right  of  the  members  of  the 
community  to  the  means  of  living  and  self  development  is 
not  dependent  upon  the  taking  of  these  values  by  the  com- 
munity. Nor  are  they  treated  as  instruments  to  the  welfare 
of  the  private  owners  who  do  get  the  socially  created  land 
values ;  for  they  expend  neither  time  nor  labour  in  the  in- 
terest of  the  latter  directly.  Their  labour  is  precisely  what 
it  would  have  been  had  there  been  no  increase  in  the  value 
of  the  land. 

Since  social  production  does  not  constitute  a  right  to  land 
values  nor  to  rent,  it  affords  not  a  shadow  of  justification 
for  the  confiscation  of  these  things  by  the  community.  If 
social  appropriation  of  socially  created  land  values  had 
been  introduced  with  the  first  occupation  of  a  piece  of 
land,  it  might  possibly  have  proved  more  generally  bene- 
ficial than  the  present  system.  In  that  case,  however,  the 
moral  claim  of  the  community  to  these  values  would  have 
rested  on  the  fact  that  they  did  not  belong  to  anybody  by 
a  title  of  strict  justice.  They  would  have  been  a  "  res 
nullius"  ("nobody's  property")  which  might  fairly  have 
been  taken  by  the  community  according  as  they  made 
their  appearance.  The  community  could  have  appropri- 
ated them  by  the  title  of  first  occupancy.  But  there  could 
have  been  no  moral  title  of  social  production.  When, 
however,  the  community  or  the  State  failed  to  take  advan- 
tage of  its  opportunity  to  be  the  first  occupant  of  these 
values,  when  it  permitted  the  individual  proprietor  to  ap- 


ARGUMENTS   AGAINST   PRIVATE   LANDOWNERSHIP       47 

propriate  them,  it  forfeited  its  own  claim.  Ever  since 
it  has  had  no  more  right  to  already  existing  land  values 
than  it  has  to  seize  the  labourer's  wages  or  the  capitalist's 
interest, —  no  more  right  than  one  person  has  to  recover 
a  gift  or  donation  that  he  has  unconditionally  bestowed 
upon  another. 

To  sum  up  the  conclusions  of  this  chapter:  The  argu- 
ment against  first  occupancy  is  valid  only  with  regard  to 
the  abuses  of  private  ownership,  not  with  regard  to  the 
institution;  the  argument  based  upon  the  title  of  labour  is 
the  outcome  of  a  faulty  analysis,  and  is  inconsistent  with 
other  statements  of  its  author;  the  argument  derived  from 
men's  equal  rights  to  land  merely  proves  that  private  own- 
ership does  not  secure  perfect  justice,  and  the  proposal  to 
correct  this  defect  by  confiscating  rent  is  unjust  because  it 
would  produce  greater  evils;  and  the  so  called  production 
of  the  social  values  of  land  confers  upon  the  community 
no  property  right  whatever. 


CHAPTER  IV 

PRIVATE   OWNERSHIP   THE   BEST   SYSTEM    OF  LAND 
TENURE 

The  defence  of  private  landownership  set  forth  in  the 
last  chapter  has  been  conditional.  It  has  tended  to  show 
that  the  institution  is  morally  lawful  so  long  as  no  better 
system  is  available.  As  soon  as  a  better  system  has  been 
discovered,  the  State  and  the  citizens  are  undoubtedly 
under  some  degree  of  moral  obligation  to  put  it  into  prac- 
tice. Hence  the  important  present  question  is  whether 
this  condition  or  contingency  has  become  a  reality.  The 
only  proposed  and  the  only  possible  alternative  systems 
are  Socialism  and  the  Single  Tax.  All  other  forms  of 
tenure  are  properly  classed  as  modifications  of  private 
ownership,  rather  than  as  distinct  systems.  Consequently 
the  worth,  and  efficiency,  and  morality  of  private  owner- 
ship can  be  adequately  determined  by  comparison  with 
the  two  just  mentioned. 

The  Socialist  Proposals  Impracticable 

As  now  existing  and  as  commonly  understood,  private 
landownership  comprises  four  elements  which  are  not 
found  together  in  either  Socialism  or  the  Single  Tax. 
They  are :  security  of  possession  combined  with  the  power 
to  transfer  and  transmit;  the  use  of  land  combined  with 
the  power  to  let  the  use  to  others;  the  receipt  of  revenue 
from  improvements  in  or  upon  the  land ;  and  the  receipt  of 
economic  rent,  the  revenue  due  to  the  land  itself,  apart 
from  improvements.  In  its  extreme  form,  and  as  for- 
merly understood  by  the  majority  of  its  authoritative  ex- 

48 


THE  BEST   SYSTEM    OF  LAND   TENURE  49 

ponents,  Socialism  would  take  from  the  individual  all  of 
these  elements  or  powers.  The  State,  or  the  Collectivity, 
would  own  and  manage  all  productive  land  and  land-capi- 
tal, and  would  receive  and  distribute  the  product.  Conse- 
quently the  cultivators  of  the  land  would  be  deprived  of 
even  that  limited  degree  of  control  which  is  now  possessed 
by  the  tenant  on  a  rented  farm ;  for  the  latter,  though  not  a 
landowner,  is  the  owner  of  a  farming  business,  and  of 
agricultural  instruments  of  production.  Under  Socialism 
the  users  of  the  land  would  not  receive  the  revenue  either 
from  improvements  or  from  the  land  itself.  They  would 
be  substantially  employes  of  the  community,  receiving  a 
share  of  the  product  according  to  some  plan  of  distribu- 
tion established  by  public  authority.  Land  occupied  by 
dwellings  would  likewise  be  owned  and  managed  by  the 
State,  although  its  product,  the  benefit  of  its  use,  would 
necessarily  go  in  the  first  instance  to  the  occupier.  In  re- 
turn for  this  benefit  he  would  undoubtedly  be  required  to 
pay  some  kind  of  rent  to  the  State. 

Now  the  majority  of  persons  believe  that  this  system  of 
land  tenure  would  be  inferior  to  private  ownership,  both 
as  regards  individual  welfare  and  social  welfare.  The 
reasons  for  this  belief  will  be  given  in  detail  in  the  chapter 
on  "  The  Socialist  Scheme  of  Industry."  For  the  present 
it  will  be  sufficient  to  point  out  in  a  summary  way  that 
Socialism  would  be  unable  to  organise  and  carry  on  effi- 
ciently all  agricultural  and  extractive  industries,  either 
under  one  central  direction  or  under  many  provincial  au- 
thorities ;  that  it  could  not  adjust  wages  and  salaries  satis- 
factorily, nor  give  the  individual  worker  an  incentive  as 
effective  as  the  self  interest  that  goes  with  private  owner- 
ship; that  it  would  deprive  the  worker  of  a  great  part  of 
the  freedom  that  he  now  enjoys  in  the  matters  of  occupa- 
tion and  residence;  that  it  would  leave  to  the  consumer 
less  choice  in  the  demand  for  the  products  of  land ;  that  it 
would  place  all  the  people  in  a  position  of  dependence  upon 


5©  DISTRIBUTIVE    JUSTICE 

a  single  agency  for  all  these  products;  and  that  it  would 
make  all  land  users,  whether  as  workers  or  as  residents, 
tenants-at-will  on  the  property  of  the  State. 

From  the  nature  of  the  case,  none  of  the  foregoing  prop- 
ositions can  be  demonstrated  mathematically.  Neverthe- 
less they  are  as  nearly  evident  as  any  other  practical  con- 
clusions which  are  based  upon  our  general  experience  of 
human  nature,  its  tendencies,  and  its  limitations.  At  any 
rate,  the  burden  of  proof  is  upon  the  advocates  of  the  new 
system.  Until  they  have  assumed  and  satisfactorily  dis- 
posed of  this  burden,  we  are  justified  in  rejecting  their 
prophecies,  and  in  maintaining  the  superiority  of  private 
ownership.^ 

To-day,  however,  many  Socialists,  possibly  the  majority 
of  them  in  some  countries,  would  reject  the  extreme  form 
of  land  socialisation  discussed  in  the  preceding  paragraphs. 
"  The  nearest  approach  which  Socialists  have  made  to  a 
volte  face  since  Marx,  has  been  in  relation  to  Agrarianism. 
.  .  .  Marx  thought  that  the  advantage  of  concentrating 
capital  would  be  felt  in  agriculture  as  in  other  industries ; 
but,  in  spite  of  a  temporary  confirmation  of  this  view  by 
the  mammoth  farms  which  sprang  up  in  North  America,  it 
now  appears  very  doubtful.  .  .  .  Recognition  of  this  has 
led  reformists  to  substitute  a  policy  of  actively  assisting 
the  peasants  for  the  orthodox  policy  of  leaving  them  to 
succumb  to  capitalism.  Their  formula  is :  *  Collectivise 
credit,  transport,  exchange,  and  all  subsidiary  manufacture, 
but  individualise  culture.'  "  ^  The  Belgian  Socialist  leader, 
Vandervelde,  seems  to  prefer  State  ownership  and  manage- 
ment of  the  great  agricultural  industries  which  require 
large  masses  of  capital  for  their  ef^cient  operation,  such 
as  dairying,  distilling,  and  sugar  making,  together  with 
State  ownership  of  the  land  thus  used.  Other  lands  he 
would  have  owned  by  the  State,  but  cultivated  by  individ- 

1  Cf.  Chapter  xi. 

2  Ensor,  "  Modem  Socialism,"  p.  xxxi,  N.  Y.,  1904. 


THE  BEST   SYSTEM    OF   LAND  TENURE  5 1 

uals  according  to  a  system  of  leasing  and  rent-paying.^ 
By  a  referendum  vote  the  members  of  the  SociaHst  party 
in  the  United  States  recently  amended  their  platform  on 
land,  to  read  as  follows :  "  The  Socialist  party  strives  to 
prevent  land  from  being  used  for  the  purpose  of  exploita- 
tion and  speculation.  It  demands  the  collective  possession, 
control  or  management  of  land  to  whatever  extent  may  be 
necessary  to  attain  that  end.  It  is  not  opposed  to  the  oc- 
cupation and  possession  of  land  by  those  using  it  in  a  use- 
ful and  bona  fide  manner  without  exploitation."  ^  As  to 
land  occupied  by  dwellings,  perhaps  the  majority  of  Social- 
ists would  now  agree  with  Spargo  in  the  statement  that, 
"  so  far  as  the  central  principle  of  Socialism  is  concerned, 
there  is  no  more  reason  for  denying  the  right  of  a  man 
to  own  his  own  home  than  there  is  to  deny  him  the  right 
to  own  his  hat."  ^ 

In  so  far  as  the  foregoing  modifications  of  Socialist  pro- 
posals would  allow  the  individual  to  own  the  land  that  he 
cultivates  or  occupies,  they  do  not  call  for  further  discus- 
sion here.  In  so  far  as  they  combine  State  ownership  of 
land  with  individual  management  of  cultivation,  they  are 
subject  to  at  least  all  the  limitations  of  the  Single  Tax. 
To  the  latter  system  we  now  turn  our  attention. 

Inferiority  of  the  Single  Tax  System 

Of  the  four  leading  elements  of  private  ownership  enu- 
merated above,  the  Single  Tax  scheme  would  comprise  all 
but  one.  In  the  words  of  Henry  George  himself:  "  Let 
the  individuals  who  now  hold  it  still  retain,  if  they  want 
to,  possession  of  what  they  are  pleased  to  call  their  land. 
Let  them  continue  to  call  it  their  land.  Let  them  buy  and 
sell,  and  bequeath  and  devise  it.  We  may  safely  leave 
them  the  shell,  if  we  take  the  kernel.     It  is  not  necessary 

1  Idem,  pp.  213-216. 

2  Cited  by  Spargo,  "  The  Substance  of  Socialism,"  p.  88,  N.  Y,,  1909. 
'  Idem,  p.  90. 


'52  DISTRIBUTIVE   JUSTICE 

to  confiscate  land;  it  is  only  necessary  to  confiscate  rent. 
...  In  this  way  the  State  may  become  the  universal  land- 
lord without  calling  herself  so,  and  without  assuming  a 
single  new  function.  In  form,  the  ownership  of  land 
would  remain  just  as  now.  No  owner  of  land  need  be  dis- 
possessed, and  no  restrittion  need  be  placed  upon  the 
amount  of  land  that  any  one  could  hold."  ^ 

Individuals  would,  therefore,  still  enjoy  security  of 
possession,  the  managerial  use  of  land,  and  the  revenue  due 
to  improvements.  The  income  arising  from  the  land  it- 
self, the  economic  rent,  they  would  be  obliged  to  hand  over 
as  a  free  gift  to  the  State.  As  we  have  seen  in  a  preced- 
ing chapter,  this  confiscation  of  rent  by  the  State  would  be 
pure  and  simple  robbery  of  the  private  owner.  Suppose, 
however,  that  the  State  were  willing  to  compensate  indi- 
vidual proprietors  with  a  sum  equal  to  the  present  value, 
or  the  capitalised  rent,  of  their  land.  In  that  case  the  only 
difference  made  to  the  individual  would  be  that  he  could  no 
longer  invest  his  money  in  land  nor  profit  by  the  increases 
in  land  values.  While  this  would  deprive  some  persons  of 
advantages  that  they  now  enjoy,  it  would  be  beneficial  to 
the  majority,  and  to  the  community.  Since  no  man  would 
find  it  profitable  to  retain  control  of  more  land  than  he 
could  use  himself,  the  number  of  actual  land  users  would 
be  increased.  The  land  speculator  would  disappear,  to- 
gether with  the  opportunity  of  making  and  losing  fortunes 
by  gambling  on  the  changes  in  land  values.  Owing  to  the 
removal  of  taxation  from  the  necessaries  of  life  and  from 
industry,  consumers  would  get  goods  cheaper,  and  some 
stimulus  would  be  given  to  production  and  employment. 
Those  monopolies  which  derive  their  strength  from  land 
would  become  weaker  and  tend  to  disappear.  Sooner  or 
later  there  would  probably  be  a  considerable  increase  in 
the  amount  of  money  available  for  public  improvements 
and  socially  beneficial  institutions. 

1 "  Progress  and  Poverty,"  book  viii,  ch.  ii. 


THE  BEST   SYSTEM  OF  LAND  TENURE  53 

On  the  other  hand,  there  would  be  certain  and  serious 
disadvantages.  A  considerable  number  of  land  users 
might  permit  their  holdings  to  deteriorate  through  careless 
cultivation.  To  be  sure,  they  w^ould  not  find  this  a  profit- 
able course  if  they  intended  to  remain  on  the  land  perma- 
nently; but  they  might  prefer  to  exhaust  the  best  qualities 
of  a  farm  in  a  few  years,  and  then  retire,  or  go  into  some 
other  business,  or  repeat  the  wearing-out  process  on  other 
lands.  Thus  the  community  would  suffer  through  the  low- 
ered productiveness  of  its  land,  and  because  of  the  lower 
rent  that  it  would  receive  from  all  subsequent  users  of  the 
deteriorated  tracts.  In  the  second  place,  the  administrative 
machinery  required  to  levy  and  collect  the  rent,  and  to  ap- 
portion the  different  holdings  among  competitive  bidders, 
would  inevitably  involve  a  vast  amount  of  error,  inequal- 
ity, favouritism,  and  corruption.  For  the  land  tax  to  be 
levied  and  collected  would  not  be,  as  now,  a  fraction  of 
the  rental  value,  but  the  full  amount  of  the  annual  rent. 
In  the  third  place,  cultivators  would  not  have  the  induce- 
ment to  make  improvements  which  arises  from  the  hope 
of  selling  both  the  improvements  and  the  land  at  a  profit, 
owing  to  the  increased  demand  for  the  land.  Perhaps 
the  greatest  disadvantage  of  the  system  would  be  the  in- 
stability of  tenure,  with  regard  to  both  productive  and 
residential  lands.  Owing  to  misfortunes  of  various  kinds, 
for  example,  one  or  two  bad  crops,  many  cultivators  would 
be  temporarily  unable  to  pay  the  full  amount  of  the  land 
tax  or  rent.  It  is  scarcely  conceivable  that  the  State  would 
remit  the  deficiency,  or  refuse  to  turn  the  land  over  to 
other  persons  on  terms  more  advantageous  to  itself.  In- 
asmuch as  the  value  and  rent  of  land  would  be  continu- 
ously adjusted  by  competition,  the  more  efficient  and  more 
wealthy  would  frequently  supplant  the  less  efficient  and 
the  less  wealthy,  even  though  the  latter  had  occupied  their 
holdings  or  their  dwellings  for  a  great  number  of  years. 
Legal  security  of  tenure,  though  theoretically  the  same  as 


54  DISTRIBUTIVE   JUSTICE 

that  enjoyed  by  the  private  owner  to-day,  would  be  much 
less  effective  practically.  In  this  respect  land  users  would 
be  in  almost  as  bad  a  case  as  renters  are  at  present.^ 

Our  conclusion,  then,  is  that  private  landownership  is 
certainly  better  than  extreme  Socialism,  or  any  form  of 
Socialism  which  does  not  concede  to  the  land  user  all  the 
control  that  he  would  have  under  the  Single  Tax  system, 
and  that  it  is  very  probably  superior  to  the  latter.  In 
making  this  comparison  and  drawing  this  conclusion,  we 
have  in  mind  private  ownership,  not  at  its  worst  nor  as  it 
exists  or  has  existed  in  any  particular  country,  but  pri- 
vate ownership  in  its  essential  elements,  and  with  its 
capacity  for  modification  and  improvement.  If  we  were 
to  examine  carefully  the  results  of  private  ownership  as  it 
obtained  in  Ireland  for  several  centuries  before  the  enact- 
ment of  the  recent  Land  Purchase  Act,  we  should  probably 
be  tempted  to  declare  that  the  most  extreme  form  of  agra- 
rian Socialism  could  scarcely  have  been  productive  of  more 
individual  and  social  injury.  Certain  other  countries  pre- 
sent almost  equally  unfavourable  conditions  of  compari- 
'son.  Failure  to  note  this  distinction  between  the  histori- 
cal and  the  potential  aspects  of  private  landownership  has 
vitiated  many  otherwise  excellent  defences  of  the  institu- 
tion. It  has  provoked  the  retort  that  almost  any  plausible 
change  would  be  an  improvement  upon  private  ownership 
as  it  has  existed  in  this  or  that  country.  But  these  are  not 
the  real  alternatives.  The  practical  choice  is  between  pri- 
vate ownership  as  shown  by  experience  and  reason  to  be 
capable  of  improvement,  and  some  untried  system  which 
is  subject  to  grave  defects,  and  which  at  its  best  would  be 
probably  inferior  to  modified  private  ownership.  An  at- 
tempt to  describe  some  of  these  modifications  and  improve- 
ments will  be  made  in  a  subsequent  chapter.  In  the  mean- 
time we  content  ourselves  with  the  statement  that  private 

*  Cf .   Walker,  "Land   and  Its   Rent";   and  Seligman,  "Essays  in 
Taxation." 


THE   BEST    SYSTEM    OF    LAND   TENURE  55 

land  ownership  is  capable  of  becoming  better  than  Social- 
ism certainly,  and  probably  better  than  the  Single  Tax  sys- 
tem. Consequently  it  is  justified  not  merely  so  long  as 
neither  of  these  schemes  is  introduced,  but  as  an  institution 
which  the  State  would  do  well  to  maintain,  protect,  and 
improve. 


CHAPTER  V 

PRIVATE   LANDOWNERSHIP   A    NATURAL   RIGHT 

The  conclusions  of  the  preceding  chapter  include  the 
statement  that  individuals  are  morally  justified  in  becoming 
and  remaining  landowners.  May  we  take  a  further  step, 
and  assert  that  private  landownership  is  a  natural  right  of 
the  individual?  If  it  is,  the  abolition  of  it  by  the  State, 
even  with  compensation  to  the  owners,  would  be  an  act  of 
injustice.  The  doctrine  of  natural  rights  is  so  prominent 
in  the  arguments  of  both  the  advocates  and  the  opponents 
of  private  landownership  that  it  deserves  specific  treat- 
ment. Moreover,  the  claim  that  private  landownership  is 
a  natural  right  rests  upon  precisely  the  same  basis  as  the 
similar  claim  with  regard  to  the  individual  ownership  of 
capital;  and  the  conclusions  pertinent  to  the  former  will 
be  equally  applicable  to  the  latter. 

A  natural  right  is  a  right  derived  from  the  nature  of  the 
individual,  and  existing  for  his  welfare.  Hence  it  differs 
from  a  civil  right,  which  is  derived  from  society  or  the 
State,  and  is  intended  for  a  social  or  civil  purpose.  Such, 
for  example,  is  the  right  to  vote,  or  the  right  to  hold  a 
public  office.  Since  a  natural  right  neither  proceeds  from 
nor  is  primarily  designed  for  a  civil  end,  it  cannot  be  an- 
nulled, and  it  may  not  be  ignored,  by  the  State.  For  ex- 
ample: the  right  to  life  and  the  right  to  liberty  are  so 
sacred  to  the  individual,  so  necessary  to  his  welfare,  that 
the  State  cannot  rightfully  kill  an  innocent  man,  nor  pun- 
ish him  by  a  term  in  prison, 

S6 


PRIVATE   LANDOWNERSHIP    A    NATURAL   RIGHT         57 

Three  Principal  Kinds  of  Natural  Rights 

Although  natural  rights  are  all  equally  valid,  they  differ 
in  regard  to  their  basis,  and  their  urgency  or  importance. 
From  this  point  of  view,  we  may  profitably  distinguish 
three  principal  types. 

The  first  is  exemplified  in  the  right  to  live.  The  object 
of  this  right,  life  itself,  is  intrinsically  good,  good  for  its 
own  sake,  an  end  in  itself.  It  is  the  end  to  which  even 
civil  society  is  a  means.  Since  life  is  good  intrinsically, 
the  right  to  life  is  also  valid  intrinsically,  and  not  because 
of  consequences.  Since  there  is  no  conceivable  equivalent 
for  life  in  the  case  of  any  individual  in  any  contingency, 
the  right  to  life  is  immediate  and  direct  in  all  possible 
circumstances. 

Among  the  natural  rights  of  the  second  class,  the  most 
prominent  are  the  right  to  marry,  to  enjoy  personal  free- 
dom, and  to  own  consumption-goods,  such  as  food  and 
clothing.  The  objects  of  these  rights  are  not  ends  in 
themselves,  but  means  to  human  welfare.  Confining  our 
attention  to  marriage,  we  see  that  membership  in  the  con- 
jugal union  is  an  indispensable  means  to  reasonable  life 
and  self  development  in  the  majority  of  persons.  The 
only  conceivable  substitutes  are  free  love  and  celibacy. 
Of  these  the  first  is  inadequate  for  any  person,  and  the 
second  is  adequate  only  for  a  minority.  Marriage  is, 
therefore,  directly  and  per  se  necessary  for  the  majority  of 
individuals;  for  the  majority  it  is  an  individual  necessity. 
If  the  State  were  to  abolish  marriage  it  would  deprive  the 
majority  of  an  indispensable  means  of  right  and  reason- 
able life.  Consequently  the  majority  have  a  direct  natural 
right  to  the  legal  power  of  marrying. 

In  the  case  of  the  minority  who  do  not  need  to  marry, 
who  can  live  as  well  or  better  as  celibates,  the  legal  oppor- 
tunity of  marriage  is  evidently  not  directly  necessary.  But 
it  is  necessary  indirectly,  inasmuch  as  the  power  of  choice 


58  DISTRIBUTIVE   JUSTICE 

between  marriage  and  celibacy  is  an  individual  necessity. 
No  argument  is  required  to  show  that  the  State  could  not 
decide  this  matter  consistently  with  individual  welfare  or 
social  peace.  Whence  it  follows  that  even  the  minority 
who  do  not  wish  or  do  not  need  to  marry,  have  a  natural 
right  to  embrace  or  reject  the  conjugal  condition.  In  their 
case  the  right  to  marry  is  indirect,  but  none  the  less 
inviolable.^ 

Private  ownership  of  land  belongs  in  a  third  class  of 
natural  rights.  Inasmuch  as  it  is  not  an  intrinsic  good, 
but  merely  a  means  to  human  welfare,  it  differs  from  life 
and  resembles  marriage.  On  the  other  hand,  it  is  unlike 
marriage  in  that  it  is  not  directly  necessary  for  any  indi- 
vidual whatever.^  The  alternative  to  marriage,  namely, 
celibacy,  would  not  even  under  the  best  social  administra- 
tion enable  the  majority  to  lead  right  and  reasonable  lives. 
The  alternative  to  private  landownership  (and  to  private 
ownership  of  capital  as  well),  namely,  some  form  of  em- 
ployment as  wage  receiver,  salary  receiver,  or  fee  receiver 
enables  the  individual  to  attain  all  the  vital  ends  of  private 
ownership :  food,  clothing,  shelter,  security  of  livelihood 
and  residence,  and  the  means  of  mental,  moral,  and  spiritual 
development.  None  of  these  vital  ends  or  needs  is  essen- 
tially dependent  upon  private  ownership  of  land ;  for  mil- 
lions of  persons  satisfy  them  every  day  without  becoming 
landowners.  Nor  are  they  exceptions,  as  those  who  can 
get  along  without  marriage  are  exceptions.  The  persons 
who  live  reasonable  lives  without  owning  land  are  average 
persons.  What  they  do  any  other  person  could  do  if 
placed  in  the  same  circumstances.  Therefore,  private  land- 
ownership  is  not  directly  necessary  for  the  welfare  of  any 
individual. 

1  The  marriage  rights  of  criminals,  degenerates,  and  other  socially 
dangerous  persons,  are  passed  over  here  as  not  pertinent  to  the  present 
discussion.  For  the  same  reason  nothing  is  said  of  the  perfectly  valid 
social  argument  in  favour  of  the  individual  right  of  marriage. 

2  Cf.  Vermeersch,  "  Quaestiones  de  Justitia,'"  no.  204. 


PRIVATE    LANDOWNERSHIP   A    NATURAL    RIGHT         59 

Private  Land  ownership  Indirectly  Necessary  for  Individual 

Welfare 

In  our  present  industrial  civilisation,  however,  private 
landownership  is  indirectly  necessary  for  the  welfare  of 
the  individual.  It  is  said  to  be  indirectly  necessary  because 
it  is  necessary  as  a  social  institution,  rather  than  as  some- 
thing immediately  connected  with  individual  needs  as  such. 
It  is  not,  indeed,  so  necessary  that  society  would  promptly 
go  to  pieces  under  any  other  form  of  land  tenure.  As  we 
have  seen  in  the  last  chapter,  it  is  necessary  in  the  sense 
that  it  is  capable  of  promoting  the  welfare  of  the  average 
person,  of  the  majority  of  persons,  to  a  much  greater 
degree  than  State  ownership.  It  is  necessary  for  the  same 
reason  and  in  the  same  way  as  a  civil  police  force.  As  the 
State  is  obliged  to  maintain  a  police  force,  so  it  is  obliged  to 
maintain  a  system  of  private  landownership.  As  the  citizen 
has  a  right  to  police  protection,  so  he  has  a  right  to  the 
social  and  economic  advantages  which  are  connected  with 
the  system  of  private  ownership  of  land.  These  rights  are 
natural,  derived  from  the  needs  of  the  individual  in  society, 
not  dependent  upon  the  good  pleasure  of  the  city  or  the 
State.  They  are  individual  rights  to  the  presence  and 
benefits  of  these  social  institutions. 

But  man's  rights  in  the  matter  of  land  tenure  are  more 
extensive  than  his  rights  with  regard  to  a  police  force. 
They  are  not  restricted  to  the  presence  and  functioning  of 
a  social  institution.  Every  citizen  has  a  natural  right  to 
police  protection,  but  no  citizen  has  a  natural  right  to 
become  a  policeman.  The  welfare  of  the  citizen  is  suffi- 
ciently looked  after  when  the  members  of  the  police  are 
selected  by  the  authorities  of  the  city.  On  the  contrary, 
his  welfare  would  not  be  adequately  safeguarded  if  the 
State  were  to  decide  who  might  and  who  might  not  become 
landowners.  In  the  first  place,  the  ideal  condition  is  that 
in  which  all  persons  can  easily  become  actual  owners.     In 


6o  DISTRIBUTIVE   JUSTICE 

the  second  place,  the  mere  legal  opportunity  of  becoming 
owners  is  a  considerable  stimulus  to  the  energy  and  ambi- 
tion of  all  persons,  even  of  those  who  are  never  able  to 
convert  it  into  an  economic  opportunity.  Therefore,  only 
a  very  powerful  reason  of  social  utility  would  justify  the 
State  in  excluding  any  person  or  any  class  from  the  legal 
power  to  own  land.  No  such  reason  exists ;  and  there  are 
many  reasons  why  the  State  should  not  attempt  anything 
of  the  sort.  As  a  consequence  of  these  facts,  every  person, 
whether  an  actual  owner  ,or  not,  has  a  natural  right  to  ac- 
quire property  in  land.  This  right  is  evidently  a  neces- 
sary condition  of  a  fair  and  efficient  system  of  private 
ownership,  which  is  in  turn  a  necessary  condition  of  indi- 
vidual welfare.  The  right  of  private  landownership  is, 
therefore,  an  indirect  right;  but  it  is  quite  as  valid  and 
quite  as  certain  as  any  other  natural  right. 

Now  this  right  is  certainly  valid  as  against  complete 
Socialism,  which  includes  State  management  and  use,  as 
well  as  State  ownership.  Is  it  valid  against  the  Single 
Tax  system,  or  against  such  modified  forms  of  Socialism 
as  would  allow  the  individual  to  rent  and  use  the  land  as  an 
independent  cultivator  with  security  of  tenure?  Would 
the  introduction  of  some  such  scheme  in  a  country  in  which 
only  a  small  minority  of  the  population  were  actual  owners, 
constitute  a  violation  of  individual  rights  ?  While  we  can- 
not with  any  feeling  of  certainty  return  an  affirmative 
answer  to  these  questions,  we  can  confidently  affirm  that 
reform  within  the  lines  of  private  ownership  would  in  the 
long  run  be  more  effective,  and,  therefore,  that  the  right 
of  private  ownership  is  probably  valid  even  against  these 
modified  forms  of  common  ownership.^ 

1  The  argument  in  the  text  is  obviously  empirical,  drawn  from  con- 
sequences. There  is,  however,  a  putatively  intrinsic  or  metaphysical 
argument  which  is  sometimes  urged  against  the  justice  of  the  Single 
Tax  system.  It  runs  thus:  since  the  fruits  of  a  thing  belong  to  the 
owner  of  the  thing,  "  res  f  ructificat  domino,"  rent,  which  is  the  economi- 


PRIVATE   LANDOWNERSHIP   A   NATURAL   RIGHT        6l 

Excessive  Interpretations  of  the  Right  of  Private 
Land  ownership 

The  indirect  character  of  the  right  of  private  landowner- 
ship,  its  relativity  to  and  dependence  upon  social  conditions, 
is  not  always  suflficiently  grasped  by  either  its  advocates 
or  its  opponents.  In  the  writings  of  the  former  we  some- 
times find  language  which  suggests  that  this  right  is  as 
independent  of  social  conditions  as  the  right  to  marriage 
or  the  right  to  life.  "  The  State  has  no  right  to  abolish 
private  property  [in  land]  because  private  property  is  not 
a  social  right,  but  an  individual  right  derived  from  nature, 
not  derived  from  the  State."  It  exists  for  human  welfare, 
not  merely  for  civil  welfare.^  The  only  defect  in  this 
reasoning  is  that  the  premises  do  not  justify  the  conclu- 
sion. Undoubtedly  the  State  may  not  abolish  private 
ownership,  so  long  as  it  is  necessary  for  human  or  indi- 
vidual welfare;  but,  when  this  necessity  ceases,  the  moral 
justification  of  the  institution  likewise  disappears.  The 
institution  may  then  be  abolished,  somehow,  by  some 
agency,  without  any  violation  of  individual  rights.  Why 
may  not  the  task  of  abolition  be  performed  by  the  State? 
No  other  agency  is  available.  The  assertion  that  the  State 
is  incompetent  to  decide  whether  the  institution  of  private 
ownership  has  outlived  its  usefulness,  is  entirely  gratuitous; 
besides,  it  implies  that  a  small  minority  of  selfishly  inter- 
ested persons  may  justly  require  the  continuation  of  a 
system  of  land  tenure  which  has  become  harmful  to  the 
overwhelming  majority  of  the  community.     Extreme  de- 

cally  imputed  fruit  of  land,  necessarily  and  as  a  matter  of  natural  right 
should  go  to  the  owner  of  the  land.  As  will  be  shown  later,  the 
formula  at  the  basis  of  this  contention  is  not  a  metaphysical  principle 
at  all,  but  a  conclusion  from  experience.  Like  every  other  formula 
or  principle  of  property  rights,  it  must  find  its  ultimate  basis  in  human 
welfare. 
1  Liberatore,  "  Principles  of  Political  Economy,"  pp.  134,  130. 


62  DISTRIBUTIVE   JUSTICE 

fences  of  the  right  of  private  landownership  are  largely 
responsible  for  the  misconceptions  of  many  of  its  oppo- 
nents. Occasionally  the  latter  represent  this  right  as  an 
a  priori  monstrosity  which  is  serenely  independent  of  the 
facts  of  life  and  industry.  While  such  persons  are  at  lib- 
erty to  reject  the  interpretations  of  facts  contained  in  the 
preceding  paragraphs,  they  cannot  reasonably  deny  the 
logic  of  the  process  which  has  led  to  the  conclusion  that  the 
individual  has  a  natural  right  to  own  land. 

So  much  for  the  natural  right  of  landownership  as  seen 
in  the  light  of  reason.  Let  us  now  consider  it  briefly  from 
the  side  of  doctrinal  authority,  namely,  the  writings  of  the 
Fathers  and  Theologians  of  the  Church,  and  the  formal 
pronouncements  of  the  Popes. 

The  Doctrine  of  the  Fathers  and  Theologians 

Some  of  the  Church  Fathers,  particularly  Augustine, 
Ambrose,  Basil,  Chrysostom,  and  Jerome,  denounced  riches 
and  the  rich  so  severely  that  they  have  been  accused  of 
denying  the  right  of  private  ownership.  The  facts,  how- 
ever, are  that  none  of  the  passages  upon  which  this  accusa- 
tion is  based  proves  it  to  be  true,  and  that  in  numerous 
other  passages  all  of  these  writers  explicitly  affirm  that 
private  ownership  is  lawful.^  Speaking  generally,  we  may 
say  that  they  taught  the  moral  goodness  of  private  owner- 
ship without  insisting  upon  its  necessity.  Hence  they  can- 
not be  cited  as  authorities  for  the  doctrine  that  the  indi- 
vidual has  a  natural  right  to  own  land. 

Some  of  the  great  theologians  of  mediseval  and  post- 
mediaeval  times  denied  this  right,  inasmuch  as  they  denied 
that  the  institution  of  private  ownership  was  imposed  or 
commanded  by  the  natural  law.     Among  them  are  Scotus,^ 

iCf.  Vermeersch,  op.  cit,  no.  210;  Ryan,  "Alleged  Socialism  of  the 
Church  Fathers." 

2  "  In  IV  Sent,"  d.  15,  q.  2,  n.  5 ;  and  "  Reportata  parisiensia,"  d.  15, 
q.  4,  n.  7-^2. 


PRIVATE   LANDOWNERSHIP   A   NATURAL   RIGHT         63 

Molina/  Lessius,^  Saurez,^  Vasquez,^  and  Billuart.^ 
Since  private  ownership  is  not  absolutely  necessary  to 
human  welfare  in  all  forms  of  society,  it  cannot,  in  their 
view,  be  regarded  as  strictly  prescribed  by  the  natural  law, 
nor  be  instituted  without  the  positive  action  of  civil  author- 
ity, or  the  consent  of  the  community.  Nevertheless  they 
all  admit  that  it  is  much  better  than  common  ownership  in 
contemporary  societies.  The  difference  between  their  posi- 
tion and  that  of  de  Lugo,  for  example,  seems  to  be 
two- fold :  First,  they  put  stronger  emphasis  upon  the 
doctrines  that  the  earth  belongs  to  all  men  in  common, 
that  in  the  absence  of  original  sin  ownership  would 
likewise  have  been  common,  and  that  this  arrangement 
is  therefore  in  a  fundamental  sense  normal,  agreeing 
with  nature  and  the  natural  law;  and,  second,  they  put 
a  lower  estimate  upon  the  superiority  of  private  owner- 
ship even  in  contemporary  conditions.  In  a  word,  they 
denied  that  private  ownership  was  so  much  better  than 
any  alternative  system  as  to  confer  upon  the  individual  a 
natural  right  in  the  strict  sense ;  that  is,  a  right  which  laid 
upon  the  State  the  correlative  obligation  of  maintaining  the 
institution  of  private  landownership. 

On  the  other  hand,  many  of  the  ablest  theologians  of 
the  same  period  declared  that  private  ownership  was  en- 
joined by  the  natural  law  and  right  reason,  and  conse- 
quently that  it  was  among  the  individual's  natural  rights. 
According  to  St.  Thomas  Aquinas,  private  property  is 
"  necessary  for  human  life,"  and  is  one  of  those  social 
institutions  which  are  prescribed  by  the  jus  gentium;  and 
the  content  of  the  jus  gentium  is  not  determined  by  positive 
law,  but  by  the  dictates  of  "  natural  reason,"  by  "  natural 

1 "  De  Justitia  et  Jure,"  tr.  2,  d.  18  and  20. 
2  "  De  Justitia  et  Jure,"  c.  5,  n.  3. 
8  "  De  Legibus,"  1.  2,  c.  14,  n.  13  and  16. 
*  "  In  Summa,"  ima  2ae,  d.  157,  n.  17. 
6  "  De  Justitia  et  Jure,"  d.  4,  a.  i. 


64  DISTRIBUTIVE   JUSTICE 

reason  itself."  ^  These  statements  seem  to  convey  the  doc- 
trine of  natural  right  as  clearly  as  could  be  expected  in  the 
absence  of  an  explicit  declaration.  Cardinal  de  Lugo  sets 
forth  the  same  teaching  somewhat  more  compactly,  but  in 
substantially  the  same  terms :  "  Speaking  generally,  a  divi- 
sion of  goods  and  of  ownership-titles  proceeds  from  the 
law  of  nature,  for  natural  reason  dictates  such  division  as 
necessary  in  the  present  circumstances  of  fallen  nature  and 
dense  populations."  ^  This  view  is  to-day  universally 
accepted  among  Catholic  writers. 

The  Teaching  of  Pope  Leo  XIII 

The  official  teaching  of  the  Church  on  the  subject  is 
found  in  the  Encyclical,  "  On  the  Condition  of  Labour,"  by 
Pope  Leo  XIIL  In  this  document  we  are  told  that  the 
proposals  of  the  Socialists  are  "manifestly  against  jus- 
tice " ;  that  the  right  of  private  property  in  land  is  "  granted 
to  man  by  nature  " ;  that  it  is  derived  "  from  nature  not 
from  man,  and  the  State  has  the  right  to  control  its  use  in 
the  interest  of  the  public  good  alone,  but  by  no  means  to 
abolish  it  altogether."  These  statements  the  Pope  deduces 
from  a  consideration  of  man's  needs.  Private  property  in 
land  is  necessary  to  satisfy  the  wants,  present  and  future, 
of  the  individual  and  his  family.  Were  the  State  to 
attempt  the  task  of  making  this  provision,  it  would  exceed 
its  proper  sphere,  and  produce  manifold  domestic  and  social 
confusion. 

While  Pope  Leo  defines  the  natural  right  of  private 
ownership  as  incompatible  with  complete  Socialism,  that  is, 
collective  use  as  well  as  collective  ownership,  his  state- 
ments cannot  fairly  or  certainly  be  interpreted  as  condemn- 
ing the  Single  Tax  system,  or  any  other  arrangement  which 
would  leave  to  the  individual  managerial  use  and  secure 
possession  of  his  holding,  together  with  the  power  to 

1 "  Sutnma  Theologica,"  2a  2ae,  q.  57,  a.  2  and  3. 
2  "  De  Justitia  et  Jure,"  d.  6,  s.  i,  n.  6. 


PRIVATE   LANDOWNERSHIP   A   NATURAL   RIGHT         6$ 

transmit  and  transfer  it,  and  full  ownership  of  improve- 
ments. These  are  the  only  elements  of  ownership  which 
the  Holy  Father  defends,  and  which  he  insists  upon  as 
necessary.  The  one  element  of  private  ownership  which 
the  Single  Tax  system  would  exclude;  namely,  the  power 
to  take  rent  from  and  profit  by  the  changes  in  land  values, 
finds  no  place  among  the  advantages  of  private  ownership 
enumerated  in  the  Encyclical. 

There  is,  indeed,  one  passage  of  the  Encyclical  in  which 
Pope  Leo  seems  to  allude  to  the  Single  Tax,  or  to  some 
similar  proposal.  He  expresses  his  amazement  at  those 
persons  who  "  assert  that  it  is  right  for  private  persons  to 
have  the  use  of  the  soil  and  its  various  fruits,  but  that  it  is 
unjust  for  any  one  to  possess  outright  either  the  land  on 
which  he  has  built,  or  the  estate  which  he  has  brought  under 
cultivation.  But  those  who  deny  these  rights  do  not  per- 
ceive that  they  are  defrauding  man  of  what  his  own  labour 
has  produced.  For  the  soil  which  is  tilled  and  cultivated 
with  toil  and  skill  utterly  changes  its  conditions :  it  was 
wild  before,  now  it  is  fruitful ;  was  barren,  but  now  brings 
forth  in  abundance.  That  which  has  thus  altered  and  im- 
proved the  land  becomes  so  truly  a  part  of  itself  as  to  be 
in  great  measure  indistinguishable  and  inseparable  from  it. 
Is  it  just  that  the  fruit  of  a  man's  own  labour  should  be 
possessed  and  enjoyed  by  any  one  else?  As  effects  follow 
their  cause,  so  is  it  just  and  right  that  the  results  of  labour 
should  belong  to  those  who  have  bestowed  their  labour." 

In  this  passage  we  find  two  principal  statements:  first, 
that  those  persons  are  in  error  who  declare  full  private 
ownership  of  land  to  be  unjust;  and,  second,  that  it  is 
wrong  to  deprive  a  man  of  the  improvements  which  he 
makes  in  the  soil.  Now  the  first  of  these  propositions  does 
not  touch  the  Single  Tax  system  as  such ;  it  only  condemns 
the  assertion  of  Henry  George  that  private  ownership  is 
essentially  unjust.  It  is  directed  against  one  of  the  argu- 
ments for  the  system,  not  against  the  system  itself.     More 


66  DISTRIBUTIVE   JUSTICE 

specifically,  it  is  a  refutation  of  an  argument  against  private 
land  ownership,  rather  than  a  positive  attack  upon  any  other 
system.  It  could  be  accepted  by  any  Single  Taxer  who 
does  not  agree  with  Henry  George  that  the  present  system 
is  essentially  unjust.  The  second  proposition  does  not 
apply  to  the  Single  Tax  system  at  all ;  for  the  latter  would 
concede  to  the  individual  holder  the  full  ownership  and 
benefit  of  improvements;  and  it  could  easily  be  so  admin- 
istered as  to  protect  him  against  injury  in  any  case  in  which 
improvement  values  were  not  exactly  and  clearly  distin- 
guishable from  land  values. 

While  Henry  George  opposed  the  doctrines  of  the  Encyc- 
lical in  his  "  Open  Letter  to  Pope  Leo  XHI,"  all  his  argu- 
ments are  directed  against  the  proposition  that  private 
ownership  is  right  and  just.  The  "  Letter  "  is  an  attack 
upon  private  ownership  rather  than  a  defence  of  the  Single 
Tax.  Apparently  its  author  did  not  find  that  Pope  Leo 
condemned  any  positive  or  essential  element  of  the  Single 
Tax  as  a  proposed  system  of  land  tenure. 

If  the  rejoinder  be  made  that  Pope  Leo  could  have  had 
no  other  group  of  persons  in  mind  than  the  Single  Taxers, 
when  he  wrote  the  paragraph  quoted  above,  our  answer 
must  be  that  he  did  not  definitely  identify  them,  either  by 
naming  them,  as  he  named  the  Socialists,  or  by  any  other 
sufficiently  explicit  designation.  Applying  to  this  para- 
graph the  customary  and  recognised  rules  of  interpretation, 
we  are  obliged  to  conclude  that  it  does  not  contain  an 
explicit  condemnation  of  the  Single  Tax  system. 

To  put  the  substance  of  this  chapter  in  two  sentences : 
Private  landownership  is  a  natural  right  because  in  present 
conditions  the  institution  is  necessary  for  individual  and 
social  welfare.  The  right  is  certainly  valid  as  against  com- 
plete Socialism,  and  probably  valid  as  against  any  such 
radical  modification  of  the  present  system  as  that  contem- 
plated by  the  thorough-going  Single  Taxers. 


CHAPTER  VI 

LIMITATIONS  ON  THE  LANDOWNER'S  RIGHT  TO  RENT 

The  chapters  immediately  preceding  have  led  to  the  con- 
clusion that  private  ownership  is  the  best  system  of  land 
tenure,  and  that  the  individual  has  a  natural  right  to  par- 
ticipate in  its  advantages.  Although  this  system  confers 
upon  the  individual  owner  the  power  to  take  the  rent  of  the 
land,  we  are  not  logically  debarred  from  raising  the  ques- 
tion whether  this  power  is  a  necessary  part  of  the  moral 
rights  of  landownership.  Does  the  right  to  own  a  piece 
of  land  necessarily  include  the  right  to  take  its  rent?  By 
what  ethical  principle  of  distribution  is  the  landowner  justi- 
fied in  appropriating  a  revenue  in  return  for  which  he  has 
performed  no  labour,  nor  made  any  sacrifice?  This  is 
unquestionably  what  happens  when  a  man  hires  out  his  land 
to  another.  And  in  conditions  of  perfect  competition, 
those  owners  who  operate  their  own  land  are  fully  remu- 
nerated for  their  labour  in  the  form  of  profits.  Over  and 
above  this  sum  they  receive  rent,  the  payment  that  they 
could  get  from  the  land  if  they  were  to  let  its  use  to  tenants. 
In  the  normal  situation,  therefore,  rent  is  a  workless  in- 
come. On  what  moral  ground  may  it  be  taken  by  the 
landowner  ?  ^ 

1  The  assumption  that  perfect  competition  is  even  roughly  approxi- 
mated in  relation  to  men  who  operate  their  own  land,  and  that  they 
generally  obtain  an  adequate  return  for  their  labour  in  addition  to  the 
sum  that  they  might  have  obtained  through  hiring  out  their  land,  may 
appear  rather  violent  in  view  of  the  estimate  that  the  average  farmer 
in  the  United  States  gets  only  $402  annually  in  payment  for  the 
labour  of  himself  and  family.  See  article  on  "  The  Farmer's  Income  " 
in   the   American  Economic   Review,   March,    1916.    However,   this 

67 


'68  DISTRIBUTIVE   JUSTICE 

The  fact  that  we  have  rejected  the  Single  Tax  and  the 
confiscation  of  rent  by  the  community,  does  not  of  itself 
commit  us  to  the  conclusion  that  the  private  owner  has  a 
moral  right  to  receive  rent.  We  have  condemned  the 
State  appropriation  of  rent  on  the  assumption  that  it  would 
take  place  without  a  similar  confiscation  of  interest.  Such 
discrimination  would  be  grossly  unfair;  for  it  would  cause 
land  values  to  sink  to  zero,  while  leaving  the  value  of 
capital  substantially  undisturbed.  To  carry  out  such  a 
programme  would  be  to  treat  property  owners  unequally, 
to  penalise  one  set  of  beneficiaries  of  "  workless  "  incomes, 
while  leaving  another  set  untouched.  Consequently,  the 
State  is  not  justified  in  confiscating  rent  unless  it  is  justi- 
fied in  confiscating  or  prohibiting  interest;  and  the  land- 
owner is  as  fully  justified  in  taking  rent  as  the  capital 
owner  is  in  taking  interest.  The  contention  of  the  Single 
Taxer  that  ownership  of  the  former  kind  is  morally  wrong, 
while  ownership  of  capital  is  morally  legitimate,  has 
already  received  sufficient  discussion.  The  specific  ques- 
tion remains,  therefore, —  whether  the  landowner  and  the 
capitalist  are  justified  in  receiving  and  retaining  their 
"  workless  "  incomes. 

Inasmuch  as  the  principles  and  pertinent  facts  involved 
in  this  question  can  be  more  effectively  and  more  con- 
veniently discussed  in  relation  to  interest  than  in  relation 
to  rent,  the  solution  will  be  deferred  to  the  chapters  on 
interest.  Assuming  provisionally  that  the  outcome  of  the 
discussion  will  be  favourable  to  the  claims  of  the  land- 
owner, let  us  inquire  whether  he  always  has  a  moral  right 
to  all  the  rent.     The  parallel  question  regarding  the  capi- 

income  is  mostly  in  the  form  of  food,  fuel,  and  shelter,  which  would 
cost  very  much  more  in  the  city;  consequently  it  is  probably  equivalent 
to  an  urban  income  of  $600.  Its  value  is  still  further  enhanced  liy  the 
farmer's  independent  position,  and  by  his  expectation  of  profiting  by 
the  future  increase  of  land  values.  Hence  it  would  seem  that  the  rent 
and  interest  allowance  of  $322  might  fairly  be  regarded  as  a  surplus 
in  excess  of  the  necessary  payment  for  labour. 


LIMITATIONS   ON   THE   LANDOWNER'S   RIGHT   TO   RENT     69 

talist  will  be  considered  in  connection  with  the  right  of  the 
labourer  to  a  living  wage. 

The  Tenanfs  Right  to  a  Decent  Lwelihood 

The  actual  payments  made  by  tenants  to  landowners 
sometimes  leave  the  former  without  the  means  of  decent 
living.  Such  had  been  the  condition  of  a  large  part  of 
the  Irish  tenant  farmers  before  1881,  when  the  Land 
Courts  were  established.  In  the  course  of  twenty-live 
years  these  courts  reduced  the  rents  by  twenty  per  cent, 
on  the  average  in  upwards  of  half  a  million  cases.  While 
a  part  of  the  reductions  was  intended  to  free  the  tenants 
from  the  unjust  burden  of  paying  rent  on  their  own  im- 
provements, another  part  was  undoubtedly  ordered  on  the 
theory  that  the  tenants  were  entitled  to  retain  a  larger 
share  of  the  product  for  their  own  support.  Yet  the  latter 
portion  of  the  reduction  apparently  represented  true 
economic  rent;  for  it  was  included  in  the  difference  be- 
tween the  product  and  the  current  cost  of  production;  it 
was  included  in  the  amount  that  men  in  Ireland  were  will- 
ing to  pay  for  the  use  of  land.  It  was  a  part  of  the  surplus 
that  they  had  left  after  defraying  their  expenditures  for 
capital  and  labour.  To  be  sure,  the  tenants  in  some  other 
countries,  say,  the  United  States,  would  not  have  been 
satisfied  with  such  a  small  remuneration,  and  would  not 
have  handed  over  so  much  to  the  landlord;  but  if  the  con- 
cept of  economic  rent  is  to  have  any  serviceable  meaning 
it  must  be  determined  by  the  actual  returns  to  capital  and 
labour  in  each  locality,  and  not  by  the  standards  of  some 
other  place  which  are  assumed  to  be  normal.  In  any  case, 
the  Irish  Land  Courts  did  reduce  the  rents  below  the  level 
fixed  by  competition,  by  the  unregulated  forces  of  supply 
and  demand. 

Was  this  treating  the  landlords  justly?  May  a  tenant 
ever  retain  a  part  of  the  rent  which  the  free  course  of 
competition  would  yield  to  the  landowner  ?     Here  we  must 


70  DISTRIBUTIVE   JUSTICE 

distinguish  between  the  tenant  who  is  and  the  tenant  who 
is  not  in  possession  of  a  holding  sufficiently  large  to  require 
all  the  time  and  labour  of  a  cultivator  possessing  average 
efficiency.  The  tenant  who  controls  and  cultivates  less 
than  this  amount  of  land  ought  not  to  expect  to  get  all  his 
livelihood  therefrom.  Failure  to  do  so  would  not  neces- 
sarily mean  that  he  was  paying  exorbitant  rent.  Holdings 
of  this  sort  are  rightly  called  "  uneconomic  " ;  that  is,  they 
are  too  small  to  permit  a  profitable  and  reasonable  applica- 
tion of  labour  and  capital.  On  such  holdings  the  fair 
rent  would  be  that  amount  per  acre  which  would  be  re- 
garded as  fair  for  the  use  of  the  same  land  held  in  farms 
of  "  economic  "  size.  The  proper  recourse  for  the  occu- 
piers of  uneconomic  holdings  is  to  get  control  of  more  land, 
which  is  exactly  what  has  been  happening  in  Ireland 
through  the  action  of  the  Congested  Districts  Board. 

This  brings  us  to  the  case  of  the  man  who  cannot  pay 
the  competitive  rent  on  a  holding  of  normal  size,  and  have 
sufficient  left  to  provide  himself  and  family  with  a  decent 
livelihood.  The  fundamental  reason  why  the  rent  is  so 
high  is  to  be  found  in  the  economic  weakness  of  the  great 
mass  of  the  tenants,  who  can  neither  emigrate  to  another 
country  nor  get  a  better  living  as  wage  earners  in  their 
own.  Their  predicament  is  exactly  the  same  as  that  of  the 
helpless  and  unskilled  labourers  who  are  compelled  by  the 
force  of  competition  to  accept  less  than  living  wages.  In 
these  circumstances  it  seems  clear  that  a  government  com- 
mission would  be  justified  in  reducing  the  rents  to  such  a 
level  as  would  leave  the  tenants  of  average  efficiency  on 
normal  holdings  the  means  of  maintaining  a  decent  stand- 
ard of  living.  In  such  cases,  then,  the  landowner  has  not 
a  right  to  the  full  economic  or  competitive  rent.  His  right 
thereto  is  morally  inferior  to  the  tenant's  right  to  a  decent 
livelihood,  just  as  the  capitalist-employer's  right  to  the  pre- 
vailing rate  of  interest  is  morally  inferior  to  the  labourer's 
right  to  a  living  wage.     Neither  in  the  one  case  nor  in  the 


LIMITATIONS   ON    THE   LANDOWNERS   RIGHT   TO   RENT      7 1 

Other  is  mere  competition  the  final  determinant  and  meas- 
ure of  justice.  It  has  no  moral  validity  when  it  comes  into 
conflict  with  man's  natural  right  to  get  a  reasonable 
livelihood  on  reasonable  conditions  from  the  bounty  of 
the  earth.  These  fundamental  questions  will  be  discussed 
at  length  in  the  chapters  on  wages. 

To  the  possible  objection  that  the  concept  of  a  "  normal  " 
holding  is  vague,  the  sufficient  reply  is  that  in  practice  it 
can  be  estimated  with  as  much  definiteness  as  the  concept 
of  the  "  average  "  labourer.  As  we  see  from  the  history 
of  the  Irish  Land  Courts  and  their  "  Judicial  Rents,"  it 
can  be  defined  with  sufficient  accuracy  to  serve  the  ends  of 
practical  justice.  More  than  this  is  not  attained  in  any 
department  of  human  relations,  particularly,  economic 
relations. 

The  Labourer's  Claim  Upon  the  Rent 

Should  any  part  of  the  rent  go  to  the  labourer?  Let 
us  take  first  the  case  of  the  labourer  who  is  employed  by  a 
tenant,  and  who  is  not  occupied  in  personal  service  but  in 
some  productive  task  connected  with  the  land.  Like  all 
other  wage  earners  he  has  a  right  to  a  sufficient  share  of 
the  product  to  afford  him  a  decent  livelihood.  Since  the 
tenant  is  the  employer,  the  director  of  the  business,  and 
the  owner  of  the  product,  he  rather  than  the  landowner 
is  the  person  who  is  primarily  charged  with  the  obligation 
of  providing  the  labourer  with  a  living  wage.  As  noted 
above,  his  own  claim  to  a  decent  livelihood  is  morally 
superior  to  the  landlord's  claim  to  rent ;  but  if,  having  taken 
this  amount  from  the  product,  he  finds  himself  unable  to 
pay  living  wages  to  all  his  employees  unless  he  deducts 
something  either  from  the  normal  interest-return  on  his 
own  capital  or  from  the  rent  that  would  ordinarily  go  to 
the  landowner,  he  is  morally  bound  to  choose  the  former 
course.  He,  not  the  landowner,  is  the  wage  payer.  That 
he  is  obliged  to  provide  living  wages  to  his  labour  force 


72  DISTRIBUTIVE   JUSTICE 

even  at  the  cost  of  interest  on  his  own  investment  in  the 
business,  is  a  proposition  that  will  receive  ample  discus- 
sion and  defence  in  a  later  chapter.^ 

Suppose,  however,  that  the  tenant  has  not  the  means  of 
paying  full  living  wages  after  turning  into  the  wage  fund 
all  the  money  that  he  had  hoped  to  retain  as  interest  on 
his  capital.  May  he  withhold  from  the  landowner  a  suffi- 
cient portion  of  the  rent  to  cover  the  deficit  in  wages? 
Were  this  action  practicable  it  would  be  undoubtedly  justi- 
fiable ;  for  the  landowner's  claim  to  rent  is  no  stronger  than 
the  tenant-capitalist's  claim  to  interest.  As  claims  upon 
the  product,  both  are  morally  weaker  than  the  labourer's 
right  to  a  living  wage.  Nevertheless,  the  tenant  who 
should  attempt  to  carry  out  this  course  would  probably 
be  prosecuted  for  non-fulfilment  of  his  contract  with  the 
landowner,  or  would  be  evicted  from  the  holding.  Nor  is 
the  landowner  obliged  in  such  cases  to  give  up  the  rent  in 
order  that  a  living  wage  may  be  paid  to  the  tenant's  labour 
force.  He  cannot  be  certain  that  the  failure  of  the  latter 
to  receive  full  living  wages  has  not  been  due  to  inefficiency 
or  fraudulent  conduct  on  the  part  of  the  tenant.  More- 
over, the  landowner  would  be  justified  in  seeking  to  pro- 
tect himself  against  the  recurrence  of  such  situations  by 
putting  his  land  in  charge  of  a  more  capable  tenant,  or  by 
selling  it  and  investing  or  lending  the  money  elsewhere. 
However  clear  may  be  the  abstract  proposition  that  the 
claim  to  a  living  wage  possessed  by  the  employee  of  the 
tenant  is  superior  to  the  claim  to  rent  possessed  by  the 
landowner,  the  difficulty  of  realising  this  right  in  practice 
is  sufficient  to  relieve  even  conscientious  proprietors  from 
the  obligation  of  giving  up  the  rent  for  this  purpose. 

When  the  landowner  is  operating  or  cultivating  his  land 
himself,  he  is  evidently  obliged  to  pay  a  living  wage  to  all 
his  employees  at  the  expense  of  rent,  just  as  he  is  obliged 
to  do  so  at  the  cost  of  interest  on  his  artificial  capital.     To 

1  Chapter  xxii. 


LIMITATIONS   ON   THE   LANDOWNER'S   RIGHT   TO   RENT      73 

be  sure,  the  first  charge  upon  the  product  should  be  a  decent 
liveHhood  for  himself;  but,  when  he  has  obtained  this,  the 
right  of  his  employees  to  a  living  wage  is  morally  superior 
to  his  right  to  either  rent  or  interest. 

At  present  the  State  takes  a  part  of  the  rent  through 
taxation.  May  it  take  a  larger  share  without  violating 
justice?  This  question  will  be  considered  in  the  second 
chapter  following.  In  the  meantime,  we  shall  examine 
the  principal  defects  of  the  existing  system  of  land  tenure 
with  a  view  to  the  suggestion  of  appropriate  remedies, 
whether  through  taxation  or  otherwise. 


CHAPTER  VII 

DEFECTS  OF  THE  EXISTING  LAND  SYSTEM 

Starting  from  the  principle  that  the  rightness  or 
wrongness  of  any  system  of  land  tenure  is  determined  not 
by  metaphysical  and  intrinsic  considerations,  but  by  the 
effects  of  the  institution  upon  human  welfare,  we  arrived  at 
the  conclusion  that  private  landownership  is  not  unjust,  so 
long  as  no  better  system  is  available.  By  the  same  test 
of  human  welfare  we  found  that  it  would  be  wrong  to 
substitute  a  better  system  through  the  process  of  confiscat- 
ing rent,  while  leaving  interest  undisturbed.  A  further 
step  brought  us  to  the  conclusion  that  complete  Socialism 
would  certainly,  and  the  complete  Single  Tax  probably,  be 
inferior  to  the  present  system.  As  a  sort  of  corollary, 
the  social  and  moral  superiority  of  private  landownership 
was  stated  in  terms  of  natural  rights.  Finally,  the  ques- 
tion was  raised  whether  the  landowner  has  a  right  to  take 
rent,  and  to  take  all  the  rent. 

In  stating  the  superiority  of  the  present  system,  we 
explicitly  noted  that  we  had  in  mind  the  system  as  capable 
of  improvement.  This  implied  that  there  are  defects  in 
the  present  form  of  land  tenure,  and  that  these  can  be 
eliminated  in  such  a  way  as  to  make  the  system  more  bene- 
ficial and  more  in  harmony  with  the  principles  of  justice. 
In  the  present  chapter  we  shall  give  a  summary  review  of 
the  principal  defects,  and  in  the  following  chapter  we  shall 
suggest  some  methods  of  reform.  All  the  defects  and 
abuses  may  conveniently  be  grouped  under  three  heads : 
Monopoly ;  Excessive  Gains ;  and  Exclusion  from  the  Land. 

74 


DEFECTS   OF   THE   EXISTING   LAND   SYSTEM  75 

Landownership  and  Monopoly 

In  the  literature  of  the  Single  Tax  movement  the  phrase, 
"  land  monopoly,"  is  constantly  recurring.  The  expres- 
sion is  inaccurate;  for  the  system  of  individual  landowner- 
ship  does  not  conform  to  the  requirements  of  a  monopoly. 
There  is,  indeed,  a  certain  resemblance  between  the  control 
exercised  by  the  owner  of  land  and  that  possessed  by  the 
monopolist.  As  the  proprietor  of  every  superior  soil  or 
site  has  an  economic  advantage  over  the  owner  of  the 
poorest  soil  or  site,  so  the  proprietor  of  a  monopolistic 
business  obtains  larger  gains  than  the  man  who  must 
operate  in  conditions  of  competition.  In  both  cases  the 
advantage  is  based  upon  the  scarcity  of  the  thing  controlled, 
and  the  extent  of  the  advantage  is  measured  by  the  degree 
of  scarcity. 

Nevertheless,  there  is  an  important  difference  between 
landownership  and  monopoly.  The  latter  is  usually  de- 
fined as  that  degree  of  unified  control  which  enables  the 
persons  in  control  arbitrarily  to  limit  supply  and  raise 
price.  As  a  rule,  no  such  power  is  exercised  by  individ- 
uals, or  by  combinations  of  individuals  with  regard  to 
land.  The  pecuniary  advantage  possessed  by  the  land- 
owner, that  is,  the  power  to  take  rent,  is  conferred  and 
determined  by  influences  outside  of  himself,  by  the  natural 
superiority  of  his  land,  or  by  its  proximity  to  a  city.  He 
can  neither  diminish  the  amount  of  land  in  existence  nor 
raise  the  price  of  his  own.  The  former  result  is  inhibited 
by  nature;  the  latter  by  the  competition  of  other  persons 
who  own  the  same  kind  of  land.  To  be  sure,  there  are 
certain  kinds  of  land  which  are  so  scarce  and  so  concen- 
trated that  they  do  fall  under  true  monopolistic  control. 
Such  are  the  anthracite  coal  mines  of  Pennsylvania,  and 
some  peculiarly  situated  plots  in  a  few  great  cities,  for 
example,  land  that  is  desired  for  a  railway  terminal.  But 
these  instances  are  exceptional.     The  general  fact  is  that 


76  DISTRIBUTIVE   JUSTICE 

the  owners  of  any  kind  of  land  are  in  competition  with 
similar  owners.  While  the  element  of  scarcity  is  common 
to  landownership  and  to  monopoly,  it  differs  in  its  opera- 
tion. In  the  case  of  monopoly  it  is  subject,  within  limits, 
to  the  human  will.  This  difference  is  sufficiently  im- 
portant, both  theoretically  and  practically,  to  forbid 
the  identification  or  confusion  of  landownership  with 
monopoly. 

A  notable  illustration  of  such  confusion  is  the  volume 
by  Dr.  F.  C.  Howe,  entitled,  "  Privilege  and  Democracy 
in  America."  He  maintains  that  bituminous  coal,  copper 
ore,  and  natural  gas  are  true  monopolies,  but  gives  no 
adequate  proof  to  support  this  assertion.  Moreover,  he 
exaggerates  considerably  the  part  played  by  landownership 
in  the  formation  of  industrial  monopolies.  Thus,  his  con- 
tention that  the  petroleum  monopoly  is  due  to  ownership  of 
oil-producing  lands  is  certainly  incorrect ;  for  the  Standard 
Oil  Company  (or  companies)  has  never  controlled  as  much 
as  half  the  supply  of  raw  material.  "  The  power  of  the 
Standard  does  not  rest  upon  a  direct  monopoly  of  the  pro- 
duction of  crude  oil  through  ownership  of  the  wells."  ^ 
Perhaps  the  most  remarkable  misstatement  in  the  volume 
is  this :  "  The  railway  is  a  monopoly  because  of  its  iden- 
tity with  land."  ^  Now  there  are  a  few  important  railway 
lines  traversing  routes  or  possessing  terminal  sites  which 
are  so  much  better  than  any  alternative  routes  or  sites  as 
to  give  all  the  advantages  of  a  true  monopoly.  But  they 
are  in  a  small  minority.  In  the  great  majority  of  cases,  a 
second  parallel  strip  or  parallel  site  could  be  found  which 
would  be  equally  or  almost  equally  suitable.  Neither  the 
amount  nor  the  kind  of  land  owned  by  a  railroad,  nor  its 
legal  privilege  of  holding  land  in  a  long,  continuous  strip, 
is  the  efficient  cause  of  a  railway  monopoly.     To  attribute 

1 "  Report  of  the  Commissioner  of  Corporations  on  the  Petroleum 
Industry,"  Part  I,  p.  8. 
2  P.  138. 


DEFECTS   OF   THE   EXISTING   LAND   SYSTEM  ^J 

the  monopoly  to  land  is  to  confound  a  condition  with  a 
cause.  One  might  as  well  say  that  the  land  underlying 
the  "  wheat  king's  "  office  is  the  cause  of  his  corner  in 
wheat.  It  is  true  that  in  a  few  of  the  great  cities  the  exist- 
ing railroads  may,  through  their  ownership  of  all  the  suit- 
able terminal  sites,  prevent  the  entrance  of  a  competing 
line.  In  the  first  place,  such  instances  are  rare;  in  the 
second  place,  the  fact  that  there  are  several  roads  already 
in  existence  shows  that  competition  was  possible  without 
the  entrance  of  another  one.  The  influence  impelling  them 
to  form  a  monopoly  for  the  regulation  of  charges  is  not 
their  ownership  of  terminal  sites.  No  sort  of  uniform 
action  with  regard  to  terminals  would  produce  any  such 
effect.  The  true  source  of  the  monopoly  element  in  rail- 
ways is  inherent  in  the  industry  itself.  It  is  the  fact  of 
"  increasing  returns,"  which  means  that  each  additional 
increment  of  business  is  more  profitable  than  the  preceding 
one,  and  that  in  most  cases  this  process  can  be  kept  up 
indefinitely.  As  a  consequence,  each  of  two  or  more  rail- 
roads between  two  points  strives  to  get  all  the  traffic ;  then 
follows  unprofitable  rate  cutting,  and  finally  combination.^ 
The  same  forces  would  produce  identical  results  if  rail- 
road tracks  and  terminals  were  suspended  in  the  air. 

Dr.  Howe  asserts  that  the  monopolistic  character  of 
such  public  utility  corporations  as  street  railways  and 
telephone  companies  is  due  to  their  occupation  of 
"  favoured  sites."  ^  How  can  this  be  true,  when  it  is 
possible  to  build  a  competing  line  on  an  adjoining  and 
parallel  street?  If  the  city  forbids  this,  and  gives  an  ex- 
clusive franchise  to  one  company,  this  legal  ordinance,  and 
not  any  exceptional  advantage  in  the  nature  of  the  land 
occupied,  is  the  specific  cause  of  the  monopoly.  If  the 
city  permits  a  competing  line,  and  if  the  two  lines  sooner 
or  later  enter  into  a  combination,  the  true  source  and 

1  Cf .  Ely,  "  Monopolies  and  Trusts,"  pp.  59,  sq. 

2  P.  133- 


78  DISTRIBUTIVE   JUSTICE 

explanation  are  to  be  found  in  the  fact  of  increasing  re- 
turns. Combination  is  immeasurably  more  profitable  than 
cut-throat  competition.  Moreover,  the  evils  of  public 
service  monopolies  can  be  remedied  through  public  con- 
trol of  charges  and  through  taxation.  Neither  in  railroads 
nor  in  public  utilities  is  land  an  impelling  cause  of  mo- 
nopoly, or  a  serious  hindrance  to  proper  regulation. 

Most  of  Dr.  Howe's  exaggerations  of  the  influence  of 
land  upon  monopoly  take  the  form  of  suggestion  rather 
than  of  specific  and  direct  statement.  When  he  attempts 
in  precise  language  to  enumerate  the  leading  sources  of 
monopoly,  he  mentions  four;  namely,  land,  railways,  the 
tariff,  and  public  service  franchises.*  Nor  is  he  able  to 
prove  his  assertion  that  of  these  the  most  important  is  land. 

Nevertheless,  land  is  one  of  the  foremost  causes.  The 
most  prominent  examples  of  land  monopoly  in  this  coun- 
try are  the  anthracite  coal  mines  and  the  iron  ore  beds. 
Fully  ninety  per  cent,  of  our  anthracite  coal  supply  (ex- 
clusive of  Alaska)  is  under  the  control  of  eight  railway 
systems  which  in  this  matter  act  as  a  unit.^  According  to 
Dr.  Howe,  the  excessive  profits  reaped  from  this  monopo- 
listic control  amount  to  between  one  hundred  and  two 
hundred  million  dollars  annually.^  In  other  words,  the 
consumers  of  anthracite  coal  must  pay  every  year  that 
much  more  than  they  would  have  expended  if  the  supply 
had  not  been  monopolised.  On  the  other  hand,  the  forma- 
tion of  monopoly  would  have  been  much  more  difficult  if 
the  railroads  had  been  legally  forbidden  to  own  coal  mines. 
As  things  stand,  railway  monopoly  is  an  important  cause 
of  the  anthracite  coal  monopoly.  Some  authorities  are  of 
the  opinion  that  a  similar  condition  of  monopoly  will  ulti- 

1  Pp.  68.  69, 

2  "  Final  Report  of  the  U.  S.  Industrial  Commission,"  p.  463;  Bliss, 
"  New  Encyclopedia  of  Social  Reform,"  pp.  245,  770;  Van  Hise,  "  Con- 
centration and  Control,"  pp.  32,  t^^. 

3  Idem,  pp.  46,  47 ;  cf.  "  Final  Report  of  Industrial  Commission,"  pp. 
463-465. 


DEFECTS    OF    THE    EXISTING   LAND   SYSTEM  79 

mately  prevail  in  the  bituminous  coal  mines.  Iron  ore 
has  been  brought  under  the  control  of  the  United  States 
Steel  Corporation  to  such  an  extent  that  the  Commissioner 
of  Corporations  writes :  "  Indeed,  so  far  as  the  Steel  Cor- 
poration's position  in  the  entire  iron  and  steel  industry  is 
of  a  monopolistic  character,  it  is  chiefly  through  its  control 
of  ore  holdings  and  the  transportation  of  ore."  ^  From 
this  statement,  however,  it  is  evident  that  the  monopoly 
depends  upon  control  of  transportation  as  well  as  upon 
ownership  of  the  ore  beds.  If  the  former  were  properly 
regulated  by  law,  the  latter  would  not  be  so  effective  in 
promoting  monopoly. 

Speaking  generally,  we  may  say  that  when  a  great  cor- 
poration controls  a  large  proportion  of  the  raw  material 
entering  into  its  manufactured  products,  such  control  will 
supplement  and  reinforce  very  materially  those  other 
special  advantages  which  make  for  monopoly.^  Prominent 
examples  are  to  be  found  in  steel,  natural  gas,  petroleum, 
and  water  powers.  In  his  "  Report  on  Water  Power  De- 
velopment in  the  United  States,"  the  Commissioner  of 
Corporations  (March  14,  191 2)  declared  that  the  rapidly 
increasing  concentration  of  control  might  easily  become 
the  nucleus  of  a  monopoly  of  both  steam  and  water  power. 
Ten  great  groups  of  interests,  he  said,  already  dominated 
about  sixty  per  cent,  of  the  developed  water  power,  and 
were  pursuing  a  policy  characterised  by  a  large  measure 
of  agreement.^  As  a  rough  generalisation,  it  would  be 
fair  to  say  that  in  one  or  two  instances,  at  least,  land- 
ownership  is  the  chief  basis,  and  in  several  other  cases  an 
important  contributory  cause  of  monopoly. 

Even  an  approximately  accurate  estimate  of  the  amount 
of  money  which  consumers  are  compelled  to  pay  annually 

1 "  Report  of  the  Commissioner  of  Corporations  on  the  Steel  In- 
dustry," Part  I,  p.  60. 
2  Cf .  Hobson,  "  The  Industrial  System,"  pp.  192-197, 
«Pp.  IS,  16,  29-31. 


8o  DISTRIBUTIVE   JUSTICE 

for  the  products  of  such  concerns  over  and  above  what  they 
would  pay  if  the  raw  material  were  not  wholly  or  partially 
monopolised,  is  obviously  impossible.  It  may  possibly  run 
into  hundreds  of  millions  of  dollars. 

Excessive  Gains  from  Private  Land  ownership 

The  second  evil  of  private  landownership  to  be  consid- 
ered here,  is  the  general  fact  that  it  enables  some  men  to 
take  a  larger  share  of  the  national  product  than  is  con- 
sistent with  the  welfare  of  their  neighbours  and  of  society 
as  a  whole.  As  in  the  matter  of  monopoly,  however,  so 
here.  Single  Tax  advocates  are  chargeable  with  a  certain 
amount  of  overstatement.  They  contend  that  the  land- 
owner's share  of  the  national  product  is  constantly  increas- 
ing, that  rent  advances  faster  than  interest  or  wages,  nay, 
that  all  of  the  annual  increase  in  the  national  product  tends 
to  be  gathered  in  by  the  landowner,  while  wages  and  in- 
terest remain  stationary,  if  tliey  do  not  actually  decline.^ 

The  share  of  the  product  received  by  any  of  the  four 
agents  of  production  depends  upon  the  relative  scarcity  of 
the  corresponding  factor.  When  undertaking  ability  be- 
comes scarce  in  proportion  to  the  supply  of  land,  labour, 
and  capital,  there  is  a  rise  in  the  remuneration  of  the  busi- 
ness man ;  when  labour  decreases  relatively  to  undertaking 
ability,  land,  and  capital,  there  is  an  increase  in  wages. 
Similar  statements  are  true  of  the  other  two  agents  and 
factors.  All  these  propositions  are  merely  particular  illus- 
trations of  the  general  rule  that  the  price  of  any  commodity 
is  immediately  governed  by  the  movement  of  supply  and 
demand.  In  view  of  this  fact,  it  is  not  impossible  that 
rent  might  increase  to  the  extent  described  in  the  preced- 
ing paragraph.  All  that  is  necessary  is  that  land  should 
become  sufficiently  scarce,  and  the  other  factors  sufficiently 
plentiful. 

As  a  fact,  the  supply  of  land  is  strictly  limited  by  nature, 

1  Cf.  "  Progress  and  Poverty,"  books  III  and  IV. 


DEFECTS   OF   THE   EXISTING   LAND   SYSTEM  8l 

while  the  other  factors  can  and  do  increase.  There  are, 
however,  several  forces  which  neutraHse  or  retard  the  tend- 
ency of  land  to  become  scarce,  and  of  rent  to  rise.  Mod- 
ern methods  of  transportation,  of  drainage,  and  of  irriga- 
tion have  greatly  increased  the  supply  of  available  land, 
and  of  commercially  profitable  land.  During  the  nine- 
teenth century,  the  transcontinental  railroads  of  the  United 
States  made  so  much  of  our  Western  territory  accessible 
that  the  value  and  rent  of  New  England  lands  actually 
declined ;  and  there  are  still  many  millions  of  acres  through- 
out the  country  which  can  be  made  productive  through 
drainage  and  irrigation.  In  the  second  place,  every  in- 
crease of  what  is  called  the  "  intensive  use  "  of  land  gives 
employment  to  labour  and  capital  which  otherwise  would 
have  to  go  upon  new  land.  In  America  this  practice  is 
only  in  its  infancy.  With  its  inevitable  growth,  both  in 
agriculture  and  mining,  the  demand  for  additional  land 
will  be  checked,  and  the  rise  in  land  values  and  rents  be 
correspondingly  diminished.  Finally,  the  proportion  of 
capital  and  labour  that  is  absorbed  in  the  manufacturing, 
finishing,  and  distributive  operations  of  modern  industry  is 
constantly  increasing.  These  processes  call  for  very  little 
land  in  comparison  with  that  required  for  the  extractive 
operations  of  agriculture  and  mining.  An  increase  of  one- 
fifth  in  the  amount  of  capital  and  labour  occupied  in  grow- 
ing wheat  or  in  taking  out  coal,  implies  a  much  greater 
demand  for  land  than  the  same  quantity  employed  in  fac- 
tories, stores,  and  railroads.^ 

As  a  consequence  of  these  counteracting  influences,  it 
appears  that  the  share  of  the  landowners  has  not  increased 
disproportionately.  The  most  comprehensive  endeavour 
yet  made  to  determine  the  growth  and  relative  size  of  the 
different  shares  of  the  national  product  is  embodied  in 
Professor  W.  I.  King's  volume,  "  The  Wealth  and  Income 
of  the  People  of  the  United  States,"  published  in  191 5. 

1  Cf .  Walker,  "  Land  and  Its  Rent,"  pp.  168-182,  Boston,  1883. 


82  DISTRIBUTIVE   JUSTICE 

It  estimates  that  the  total  annual  income  of  the  nation  in- 
creased from  a  little  less  than  two  and  one-fourth  billions 
of  dollars  in  1850  to  a  little  more  than  thirty  and  one-half 
billions  in  1910,  or  slightly  more  than  fifteen  times. 
During  the  same  period  rent,  the  share  of  the  landowners, 
advanced  from  $i7o,6cx),ooo  to  $2,673,900,000,  or  about 
fifteen  and  three  quarter  times.  In  the  year  19 10,  there- 
fore, the  landowners  were  receiving  but  a  very  small  frac- 
tion more  of  the  national  product  than  their  predecessors 
obtained  sixty  years  earlier.^  As  to  the  relative  size  of 
the  shares  going  to  the  different  factors  in  19 10,  the  figures 
are  even  more  remarkable.  Wages  and  salaries  absorbed 
46.9  per  cent;  profits,  27.5  per  cent.;  interest,  16.8  per 
cent. ;  and  rent,  only  8.8  per  cent.^  This  was  exactly  the 
same  per  cent,  that  the  landowners  received  in  i860.  To 
be  sure,  these  figures  are  only  approximations,  but  they  are 
probably  the  most  reliable  that  can  be  obtained  from  our 
notoriously  incomplete  statistics,  and  they  will  deserve 
respectful  consideration  until  they  have  been  refuted  by 
specific  criticism  and  argument.  In  the  opinion  of  their 
compiler :  "  The  figures  for  wages  and  salaries  are  believed 
to  be  fairly  accurate;  those  for  rent  are  thought  to  have 
an  error  of  not  more  than  twenty  per  cent.  The  separa- 
tion of  the  share  of  capital  from  that  of  the  entrepreneur 
is  very  crudely  done  and  no  stress  should  be  laid  on  the 
results.  The  total  for  all  shares  is  thought  to  be  more 
accurate  than  the  mode  of  distribution,  and  for  the  last 
three  census  years  should  come  within  ten  per  cent,  of  the 
correct  statement  of  the  national  income.  For  earlier 
years  the  error  should  not  be  over  twenty  per  cent,  at  the 
outside."  ^  If  we  make  the  maximum  allowance  for  error 
in  reference  to  the  share  of  the  landowner,  and  assume 
that  the  rent  estimate  is  twenty  per  cent,  too  low,  we  find 
that  it  was  still  only  ten  and  one-half  per  cent,  of  the  total 
product  in  1910,  which  represents  an  increase  of  less  than 
1  Page  158.  2  Page  160.  »  Pagg  158;  footnote. 


DEFECTS   OF   THE   EXISTING   LAND   SYSTEM  83 

three  per  cent,  since  1850.  It  is  significant  that  Dr.  Howe, 
who  has  no  bias  toward  behttling  the  share  of  the  land- 
owner, suggested  as  his  minimum  and  maximum  estimates 
of  the  land  values  of  the  country  in  1910  figures  which  are 
respectively  fifty  per  cent,  below  and  only  five  per  cent, 
above  the  amount  taken  by  Professor  King  as  the  basis 
for  his  estimate  of  rent.^  There  is,  consequently,  a  strong 
presumption  that  Professor  King  is  right  when  he  stig- 
matises as  "  absurd  "  the  contention  of  the  Single  Taxer, 
"  that  all  the  improvements  of  industry  result  only  in  the 
enrichment  of  the  landlord.  .  .  .  The  value  of  our  prod- 
ucts has  increased  since  1850  to  the  extent  of  some  twenty- 
eight  billions  of  dollars,  while  rent  has  gained  less  than 
three  billions.  Evidently  it  has  captured  but  a  meagre  part 
of  the  new  production."  ^ 

There  are  strong  indications,  however,  that  the  per  cent, 
of  the  product  going  to  the  owners  of  land  has  increased 
considerably  in  the  last  twenty  years,  and  that  this  move- 
ment will  continue  indefinitely.  According  to  Professor 
King's  calculations,  the  per  cent,  of  the  total  product 
assignable  as  rent  advanced  from  7.8  in  1900  to  8.8  in 
1910,  which  meant  that  during  that  period  the  national 
income  increased  only  70  per  cent.,  while  the  share  of  the 
landowner  increased  91  per  cent.^  It  is  true  that  a  dis- 
proportionate advance  in  rent  has  occurred  between  other 
census  years,  only  to  be  neutralised  by  subsequent  de- 
creases; but  the  present  instance  seems  to  include  certain 
features  which  did  not  characterise  any  of  the  former 
gains  in  the  relative  share  of  the  landowner.  Since  1896 
the  prices  of  food  products  "  rose  most  rapidly  in  the  case 
of  meat,  dairy  products,  and  cereals,  which  were  derived 
directly  from  the  land.  The  prices  of  raw  materials  show 
a  like  relation.     Timber,  grain,  and  other  raw  materials 

1 "  Privilege  and  Democracy,"  p.  307. 

2  Page  160. 

8  Op.  cit,  pages  160,  158. 


84  DISTRIBUTIVE   JUSTICE 

obtained  directly  from  the  land  have  risen  rapidly  in  price, 
while  semi-manufactured  articles  have  increased  less  rap- 
idly, or  have  decreased  in  price.  .  .  .  There  is  no  parallel 
in  any  other  field  to  the  advance  in  those  land  values  upon 
which  civilisation  most  directly  depends  —  timber  lands, 
fertile  agricultural  land,  and  land  in  large  commercial  and 
industrial  centres.  The  recent  rise  in  land  values  has  been 
little  short  of  revolutionary."  ^ 

Between  1900  and  191  o  the  value  of  farm  lands  per  acre 
in  the  United  States  advanced  108,1  per  cent.^  During 
the  eight  years  beginning  with  July  i,  1906,  the  value  of 
land  in  Greater  New  York  increased  something  more  than 
one-third;  in  the  principal  cities  of  New  Jersey,  and  in 
Worcester,  Washington,  Boston,  and  Buffalo,  somewhat 
less;  in  Springfield  and  Holyoke,  considerably  more.  In 
the  most  recent  ten  years  for  which  figures  are  available 
(since  1900  in  every  case)  the  land  values  of  Milwaukee, 
St.  Louis  and  San  Francisco  averaged  only  a  slight  degree 
of  expansion,  while  those  of  Kansas  City  doubled,  and 
those  of  Houston,  Dallas,  Los  Angeles,  and  Seattle  trebled. 
To  quote  Professor  Nearing,  from  whose  compilations 
these  estimates  have  been  summarised :  "  The  total  extent 
of  the  increase  in  American  city  land  values  may  be  hinted 
at  rather  than  stated  with  any  certainty.  The  scattering 
instances  in  which  land  and  improvements  are  separately 
assessed  led  to  the  conclusion  that  in  a  large,  well-estab- 
lished city,  growing  at  approximately  the  same  rate  as  the 
other  portions  of  the  United  States,  the  land  value  is 
doubling  in  from  ten  to  twenty-five  years.  In  the  new, 
rapidly  growing  city  of  the  middle  and  far  West  and  in 
some  of  the  smaller  cities  of  the  East,  the  ratio  of  increase 
in  land  values  is  far  greater,  amounting  to  two- fold  or 

1  Professor  Nearing  in  "  The  Annals  of  the  American  Academy  of 
Political  and  Social  Science,"  March,  1915. 

2  Thirteenth  Census,  Bulletin  on  "  Farms  and  Farm  Property," 
page  1. 


DEFECTS   OF   THE   EXISTING   LAND   SYSTEM  85 

even  three-fold  in  a  decade.  In  a  few  instances  the  rate 
of  increase  is  much  smaller,  and  in  one  case,  Jersey  City, 
land  values  over  a  period  of  seven  years  have  actually 
decreased.  .  .  .  Nevertheless,  the  few  available  long  range 
figures  indicate  a  widespread  and  considerable  increase  in 
American  city  land  values."  ^ 

The  rise  in  the  value  of  timber  lands  during  the  last 
thirty  years  has  been,  in  the  words  of  the  federal  investi- 
gators, "  enormous."  For  the  ten-year  period  ending  in 
1908,  "  the  value  of  a  given  piece  of  southern  pine  taken 
at  random  is  likely  to  have  increased  in  any  ratio  from 
three-fold  to  ten-fold."  About  the  same  ratio  of  increase 
obtained  in  the  Pacific  Northwest,  and  a  somewhat  smaller 
increase  in  the  region  of  the  Great  Lakes.^  While  a  con- 
siderable decline  has  taken  place  since  1908,  it  is  only  tem- 
porary ;  for  the  demand  for  timber  is  notoriously  increasing 
several  times  as  fast  as  the  supply. 

That  this  upward  movement  in  the  value  of  all  three 
kinds  of  land  will  continue  without  serious  interruption, 
seems  to  be  as  nearly  certain  as  any  economic  proposition 
that  is  dependent  upon  the  future.  Although  millions  of 
acres  of  arable  lands  are  still  unoccupied  in  the  United 
States  and  Canada,  the  far  greater  part  of  them  require  a 
comparatively  large  initial  outlay  for  draining,  clearing, 
irrigation,  etc.,  in  order  to  become  productive.  Hence 
there  is  no  likelihood  that  they  can  be  brought  under  culti- 
vation fast  enough  to  halt  or  greatly  retard  the  advancing 
values  which  follow  upon  the  growth  of  population  and  the 
increased  dematid  for  agricultural  products.  In  all  prob- 
ability the  greater  part  of  them  will  not  come  into  use  until 
the  prices  of  farm  products  have  risen  above  the  present 
level.     Obviously  this  supposes  an  increase  in  the  value  of 

1  The  Public,  Nov,  26,  1915.  For  an  account  of  increases  in  the 
principal  European  cities,  see  Camille-Husymans,  "  La  plus-value 
immobiliere  dans  les  communes  beiges  " ;  Gand,  1909. 

2 "  Report  of  the  Commissioner  of  Corporations  on  the  Lumber 
Industry,"  Part  I,  pp.  214-216. 


86  DISTRIBUTIVE   JUSTICE 

all  farm  land,  old  and  new.  Nor  is  the  adoption  of  better 
methods  of  farming  likely  to  check  seriously  the  upward 
movement.  Between  1900  and  19 10  the  urban  population 
of  America  increased  34.8  per  cent.,  as  against  a  gain  of 
only  21  per  cent,  in  the  total  population.  This  dispropor- 
tionate growth  in  the  number  of  the  city  dwellers  will  if 
continued  make  certain  what  is  in  any  case  extremely  prob- 
able, a  steady  and  considerable  advance  in  urban  land  values 
and  rents. 

The  circumstance  that  these  remarkable  increases  in  land 
values  are  a  comparatively  recent  phenomenon  has  pre- 
vented them  from  receiving  the  attention  that  they  deserve, 
either  from  the  general  public  or  from  the  students  of 
economic  and  social  problems.  The  total  value  of  the  land 
of  the  country  has  increased  steadily  from  decade  to  decade, 
but  so  has  the  total  value  of  capital,  and  even  between  1900 
and  19 10  the  increase  in  the  share  of  the  capitalist  was 
exactly  equal  to  the  increase  in  the  share  of  the  landowner, 
that  is,  91  per  cent.^  Those  persons  who  complacently 
make  such  comparisons  overlook  the  new  and  significant 
feature  of  the  more  recent  advances  in  land  value ;  namely, 
that  they  are  due  in  only  a  slight  degree  to  an  expansion 
of  the  area  of  land  under  consideration.  The  increases  of 
value  quoted  in  the  foregoing  paragraphs  are  increases  per 
acre  and  per  urban  lot,  not  increases  derived  from  bringing 
new  land  under  cultivation  or  new  tracts  within  municipal 
limits.  On  the  other  hand,  the  increases  in  the  value  of 
capital,  now  as  always,  represent  for  the  most  part  con- 
crete additions  to  the  existing  stock  of  productive  instru- 
ments. Except  where  monopoly  holds  sway,  particular 
capital  instruments,  unlike  particular  pieces  of  land,  do  not 
increase  in  value.  Hence  the  owner  of  a  given  amount  of 
capital  does  not  profit  by  the  advance  in  the  total  value  of 
capital  as  the  owner  of  the  average  parcel  of  land  profits  by 
the  general  increase  in  the  value  of  land.     This  means  that 

1  King,  op.  cit,  p.  158. 


DEFECTS   OF   THE   EXISTING   LAND   SYSTEM  87 

all  those  consumers  of  products  who  are  not  landowners 
must  pay  an  increasing  tribute  to  those  who  are  landed 
proprietors. 

So  much  for  the  proportion  of  the  national  product  which 
goes  to  the  landowning  class.  Let  us  next  inquire  how  the 
landowner's  share,  or  rent,  is  distributed  throughout  the 
population.  If  it  were  equally  divided  among  all  persons, 
its  increase  relatively  to  the  shares  of  the  other  factors 
would,  from  the  social  viewpoint,  be  a  matter  of  consid- 
erable indifference.  On  the  other  hand,  if  it  is  secured 
by  a  minority  of  the  population,  and  if  that  minority  tends 
to  become  smaller  as  the  share  itself  becomes  larger,  we 
have  a  socially  undesirable  condition. 

In  the  twenty  years  between  1890  and  191  o,  the  pro- 
portion of  farm  families  in  the  United  States  owning  farm 
land,  mortgaged  or  unmortgaged,  declined  from  65.9  per 
cent,  to  62.8  per  cent. ;  the  proportion  of  urban  families 
owning  their  homes,  encumbered  or  unencumbered,  in- 
creased from  36.9  to  38.4  per  cent.,  and  the  proportion  of 
all  families  owning  homes,  encumbered  or  unencumbered, 
fell  from  47.8  to  45.8  per  cent.  Of  the  homes  owned  by 
their  occupiers,  28  per  cent,  were  mortgaged  in  1890,  and 
32.8  per  cent,  in  1910.^  While  a  decline  of  two  per  cent, 
in  the  home  owning  and  landowning  families  in  twenty 
years,  and  an  increase  of  almost  five  per  cent,  in  the  number 
of  those  families  who  hold  their  property  subject  to  encum- 
brance, may  not  seem  very  serious  in  themselves,  they  in- 
dicate a  definitely  unhealthy  trend.  Not  only  are  the  land- 
owning families  in  a  minority,  but  the  minority  is  becoming 
smaller. 

Nevertheless,  when  we  consider  the  amount  of  gains 
accruing  to  the  average  member  of  the  landowning  class, 
we  do  not  find  that  it  is  unreasonably  large.  The  great 
majority  of  landed  proprietors  have  not  received,  nor  are 
they  likely  to  receive,  from  their  holdings  incomes  suffi- 

1  Thirteenth  Census,  Vol.  I,  p.  1295. 


88  DISTRIBUTIVE   JUSTICE 

ciently  large  to  be  called  excessive  shares  of  the  national 
product.  Their  gross  returns  from  land  have  not  ex- 
ceeded the  equivalent  of  fair  interest  on  their  actual  in- 
vestment, and  fair  wages  for  their  labour.  The  landown- 
ers who  have  been  enabled  through  their  holdings  to  rise 
above  the  level  of  moderate  living  constitute  a  compara- 
tively small  minority.  And  these  statements  are  true  of 
both  agricultural  and  urban  proprietors. 

It  is  true  that  a  considerable  number  of  persons,  abso- 
lutely speaking,  have  amassed  great  wealth  out  of  land. 
It  is  a  well  known  fact  that  land  was  the  principal  source 
of  the  great  mediaeval  and  post-mediaeval  fortunes,  down 
to  the  end  of  the  eighteenth  century.  "  The  historical 
foundation  of  capitalism  is  rent."  ^  Capitalism  had  its 
beginning  in  the  revenue  from  agricultural  lands,  city 
sites,  and  mines.  A  conspicuous  example  is  that  of  the 
great  Fugger  family  of  the  sixteenth  century,  whose  wealth 
was  mostly  derived  from  the  ownership  and  exploitation 
of  rich  mineral  lands. ^  In  the  United  States  very  few 
large  fortunes  have  been  obtained  from  agricultural  land, 
but  the  same  is  not  true  of  mineral  lands,  timber  lands,  or 
urban  sites.  "  The  growth  of  cities  has,  through  real  es- 
tate speculation  and  incremental  income,  made  many  of 
our  millionaires."  ^  "  As  with  the  unearned  income  of 
city  land,  our  mineral  resources  have  been  conspicuously 
prolific  producers  of  millionaires."  *  The  most  striking 
instance  of  great  wealth  derived  from  urban  land  is  the 
fortune  of  the  Astor  family.  While  gains  from  trading 
ventures  formed  the  beginning  of  the  riches  of  the  orig- 
inal Astor,  John  Jacob,  these  were  "  a  comparatively  in- 
significant portion  of  the  great  fortune  which  he  trans- 

iHobson,  "The  Evolution  of  Modern  Capitalism,"  p.  4;  London, 
1907. 
2  Harper's  Monthly  Magasine,  Jan.,  1910. 

^Watkins,  "The  Growth  of  Large  Fortunes,"  p.  75;  N.  Y.,  1907. 
*Idem,  p.  93. 


DEFECTS   OF   THE   EXISTING   LAND   SYSTEM  89 

•mitted  to  his  descendants."  ^  At  his  death,  in  1848,  John 
Jacob  Astor's  real  estate  holdings  in  New  York  City  were 
valued  at  eighteen  or  twenty  million  dollars.  To-day  the 
Astor  estate  in  that  city  is  estimated  at  between  450  and 
500  millions,  and  within  a  quarter  of  a  century  will  not 
improbably  be  worth  one  billion  dollars.^  According  to 
an  investigation  made  in  1892  by  the  New  York  Tribune, 

26.4  per  cent,  of  the  millionaire  fortunes  of  the  United 
States  at  that  time  were  traceable  to  landownership,  while 

41.5  per  cent,  were  derived  from  competitive  industries 
which  were  largely  assisted  by  land  possessions.^  The 
proportion  of  such  fortunes  that  is  due,  directly  or  indi- 
rectly, in  whole  or  in  part,  to  landownership  has  undoubt- 
edly increased  considerably  since  1892. 

With  regard  to  great  individual  or  corporate  land  hold- 
ings, there  exist  no  adequate  statistics.  A  few  conspicu- 
ous instances  may  be  cited.  The  United  States  Steel  Cor- 
poration owns  lands  yielding  iron  ore,  coal,  coke,  and 
timber  which  are  valued  by  the  Commissioner  of  Cor- 
porations at  nearly  250  million  dollars,  and  by  the  Steel 
Corporation  itself  at  more  than  800  million  dollars.* 
Three  companies  own  nearly  eleven  per  cent.,  and  195  in- 
dividuals or  corporations  own  48  per  cent,  of  all  the  pri- 
vately owned  timber  in  the  United  States.^  The  United 
States  Census  of  1910  shows  that  the  number  of  farms 
containing  500  acres  or  over  was  about  175,000,  and  com- 
prised ten  per  cent,  of  the  total  farm  acreage.  One  hun- 
dred and  fifty  persons  and  corporations  are  said  to  own 

1  Youngman,  "The  Economic  Causes  of  Great  Fortunes,"  p.  45;  N. 
Y.,  1909. 

2  Howe,  op.  cit.,  pp.  125,  126. 

3  Cf.  Commons,  "The  Distribution  of  Wealth,"  pp.  252,  257;  N,  Y., 
1893- 

*  "  Report  of  the  Commissioner  of  Corporations  on  the  Steel  In- 
dustry," Part  I,  p.  314. 

5  "  Summary  of  Report  of  the  Commissioner  of  Corporations  on  the 
Lumber  Industry,"  pp.  3-8. 


90  DISTRIBUTIVE  JUSTICE 

220,o(X),ooo  acres  of  various  kinds  of  land.  None  of 
these  holders  has  less  than  ten  thousand  acres,  and  two  of 
the  syndicates  possess  fifty  million  acres  each.^ 

Exclusion  from  the  Land 

One  of  the  most  frequent  charges  brought  against  the 
present  system  of  land  tenure  is  that  it  keeps  a  large 
proportion  of  our  natural  resources  out  of  use.  It  is  con- 
tended that  this  evil  appears  in  three  principal  forms : 
owners  of  large  estates  refuse  to  break  up  their  holdings 
by  sale;  many  proprietors  are  unwilling  to  let  the  use  of 
their  land  on  reasonable  terms;  and  a  great  deal  of  land 
is  held  at  speculative  prices,  instead  of  at  economic  prices. 
So  far  as  the  United  States  are  concerned,  the  first  of 
these  charges  does  not  seem  to  represent  a  condition  that 
is  at  all  general.  Although  many  holders  of  large  mineral 
and  timber  tracts  seem  to  be  in  no  hurry  to  sell  portions 
of  their  holdings,  they  are  probably  moved  by  a  desire  to 
obtain  higher  prices  rather  than  to  continue  as  large  land- 
owners. As  a  rule,  the  great  landholders  of  America  are 
without  those  sentiments  of  tradition,  local  attachment, 
and  social  ascendency  which  are  so  powerful  in  maintain- 
ing intact  the  immense  estates  of  Great  Britain.  On  the 
contrary,  one  of  the  common  facts  of  to-day  is  the  per- 
sistent effort  carried  on  by  railroads  and  other  holders  of 
large  tracts  to  dispose  of  their  land  to  settlers.  While  the 
price  asked  by  these  proprietors  is  frequently  higher  than 
that  which  corresponds  to  the  present  productiveness  of 
the  land,  it  is  generally  as  low  as  that  which  is  demanded 
by  the  owners  of  smaller  parcels.  To  be  sure,  this  is  one 
way  of  unreasonably  hindering  access  to  the  land,  but  it 
falls  properly  under  the  head  of  the  third  charge  enu- 
merated above.  There  is  no  sufficient  evidence  that  the 
large  landholders  are  exceptional  offenders  in  refusing  to 
sell  their  holdings  to  actual  settlers. 
1  From  articles  in  "  The  Single  Tax  Review,"  vol.  9,  nos.  5,  6. 


DEFECTS   OF   THE   EXISTING   LAND   SYSTEM  9 1 

The  assertion  that  unused  land  cannot  be  rented  on 
reasonable  terms  is  in  the  main  unfounded,  so  far  as  it 
refers  to  land  which  is  desired  for  agriculture.  As  a  rule, 
any  man  who  wishes  to  cultivate  a  portion  of  such  land 
can  fulfil  his  desire  if  he  is  willing  to  pay  a  rent  that  cor- 
responds to  its  productiveness.  After  all,  landowners  are 
neither  fools  nor  fanatics :  while  awaiting  a  higher  price 
than  is  now  obtainable  for  their  land,  they  would  prefer  to 
get  from  it  some  revenue  rather  than  none  at  all.  As  a 
matter  of  fact,  almost  all  the  agricultural  land  that  is  im- 
mediately available  for  renting,  is  constantly  under  culti- 
vation. This  refers  to  land  that  is  already  under  the 
plough,  and  is  provided  with  buildings  and  other  neces- 
sary improvements.  Practically  none  of  this  is  out  of 
use.  New  land  which  is  without  buildings  is  not  wanted 
by  tenants,  unless  it  is  convenient  to  their  residences,  be- 
cause they  do  not  desire  to  expend  money  for  permanent 
improvements  upon  land  that  they  do  not  own.  True, 
the  present  owners  of  such  land  might  erect  buildings, 
and  then  let  it  to  tenants.  In  so  far  as  new  land  might 
profitably  be  improved  and  cultivated,  and  in  so  far  as  the 
owners  are  unwilling  or  unable  to  provide  the  improve- 
ments, the  present  system  does  keep  out  of  use  agricultural 
land  that  could  be  cultivated  by  tenants.  Mineral  and  tim- 
ber lands  are  sometimes  withheld  from  tenants  because  the 
owners  wish  to  limit  the  supply  of  the  product,  or  because 
they  fear  that  a  long-term  lease  would  prevent  them  from 
selling  the  land  to  the  best  advantage.  As  to  urban  sites, 
the  contention  that  we  are  now  examining  is  generally 
true.  The  practice  of  leasing  land  to  persons  who  wish 
to  build  thereon  does  not,  with  the  exception  of  a  very  few 
cities,  obtain  in  the  United  States  for  other  than  very  large 
business  structures.  As  a  rule,  it  does  not  apply  to  sites 
for  residences.  The  man  who  wants  a  piece  of  urban  land 
for  a  dwelling  or  for  a  moderately  sized  business  build- 
ing cannot  obtain  it  except  by  purchase. 


92  DISTRIBUTIVE   JUSTICE 

Cannot  the  land  be  bought  at  a  reasonable  price  ?  This 
brings  us  to  the  third  and  most  serious  of  the  charges  con- 
cerning exclusion  from  the  land.  Since  the  value  of  land 
in  most  cities  is  rising,  and  apparently  will  continue  to 
rise  more  or  less  steadily,  the  price  at  which  it  is  held  and 
purchasable  is  not  the  economic  price  but  a  speculative 
price.  It  is  higher  than  the  capitalised  value  of  the  present 
revenue  or  rent.  For  example:  if  five  per  cent,  be  the 
prevailing  rate  of  interest,  a  piece  of  land  which  returns 
that  rate  on  a  capital  of  one  thousand  dollars  cannot  be 
bought  for  one  thousand  dollars.  The  purchaser  is  will- 
ing to  pay  more  because  he  hopes  to  sell  it  for  a  still  higher 
price  within  a  reasonable  time.  He  knows  that  he  cannot 
immediately  obtain  five  per  cent,  on  the  amount  (say,  1,200 
dollars)  that  he  is  ready  to  pay  for  the  land,  but  his  valu- 
ation of  it  is  not  determined  merely  by  its  present  income- 
producing  power,  but  by  its  anticipated  revenue  value  and 
selling  value. ^  The  buyer  will  pay  more  for  such  land 
than  for  a  house  which  yields  the  same  return;  for  he 
knows  that  the  latter  will  not,  and  hopes  that  the  former 
will,  bring  a  higher  return  and  a  higher  price  in  the  future. 
Wherever  this  discounting  of  the  future  obtains,  the  price 
of  land  is  unreasonably  high,  and  access  to  vacant  land  is 
unreasonably  difficult. 

This  condition  undoubtedly  exists  most  of  the  time  in 
the  great  majority  of  our  larger  cities.  Men  will  not  sell 
vacant  land  at  a  price  which  will  enable  the  buyer  to  ob- 
tain immediately  a  reasonable  return  on  his  investment. 
They  demand  in  addition  a  part  of  the  anticipated  increase 
in  value.  In  the  rural  regions  this  evil  appears  to  be 
smaller  and  less  general.  The  owners  of  unused  or  un- 
economically  used  arable  land  are  more  eager  to  sell  their 

1 "  In  a  growing  city,  an  advantageous  site  will  command  a  price 
more  than  in  proportion  to  its  present  rent,  because  it  is  expected  that 
the  rent  will  increase  still  further  as  the  years  go  on,"  Taussig, 
"Principles  of  Economics,''  II,  98;  N.  Y.,  191 1. 


DEFECTS   OF   THE  EXISTING   LAND   SYSTEM  93 

holdings  than  the  average  proprietor  of  a  vacant  lot.  So 
far  as  this  sort  of  land  is  concerned,  it  is  probable  that 
most  of  the  denunciation  of  "  land  speculators  "  and  "  land 
monopolists  "  overshoots  the  mark.  Not  the  high  price  at 
which  unused  arable  lands  are  held,  but  the  great  initial 
cost  of  draining,  clearing,  or  irrigating  them,  is  the  main 
reason  why  they  are  not  purchased  by  cultivators. 

While  no  general  and  precise  estimate  can  be  given  of 
the  extent  to  which  the  speculative  exceeds  the  actual 
rent-producing  value  of  land  in  growing  cities,  twenty-five 
per  cent,  would  not  improbably  be  a  fair  conjecture.  Even 
when  a  reaction  occurs  after  a  period  of  excessive  "  land- 
booming,"  the  lower  prices  do  not  bring  the  manless  land 
any  nearer  to  the  landless  men.  Only  the  few  who  possess 
ready  money  or  excellent  credit  can  take  advantage  of  such 
a  situation.  On  the  whole  the  evil  that  we  are  now  con- 
sidering is  probably  greater  than  any  other  connected  with 
the  private  ownership  of  land. 

All  the  tendencies  and  forces  that  have  been  described 
in  the  present  chapter  under  the  heads  of  Monopoly,  Ex- 
cessive Gains,  and  Exclusion  from  the  Land,  are  in  some 
degree  real  defects  and  abuses  of  the  existing  system  of 
land  tenure.  Most  of  them  do  not  seem  to  be  sufficiently 
understood  or  appreciated  by  the  more  ardent  defenders  of 
private  ownership.  To  recognise  them,  and  to  seek  ade- 
quate correctives  of  them  would  seem  to  be  the  task  of 
both  righteousness  and  expediency.  In  the  next  and  final 
chapter  of  this  Section,  we  shall  consider  certain  remedies 
that  seem  to  be  at  once  effective  and  just. 


CHAPTER  VIII 

METHODS   OF  REFORMING   OUR   LAND   SYSTEM 

In  economic  and  social  discussion  the  word  reform  is 
commonly  opposed  to  the  word  revolution.  It  implies 
modification  rather  than  abolition,  gradual  rather  than  vio- 
lent change.  Hence  reforms  of  the  system  of  land  tenure 
do  not  include  such  radical  proposals  as  those  of  land  na- 
tionalisation or  the  Single  Tax.  On  the  other  hand,  some 
extension  of  State  ownership  of  land,  and  some  increase 
in  the  proportion  of  taxes  imposed  upon  land,  may  quite 
properly  be  placed  under  the  head  of  reform,  inasmuch  as 
they  are  changes  in  rather  than  a  destruction  of  the  exist- 
ing system. 

In  general,  the  reform  measures  needed  are  such  as  will 
meet  the  defects  described  in  the  last  chapter;  namely, 
monopoly,  excessive  gains,  and  exclusion  from  the  land. 
Obviously  they  can  be  provided  only  by  legislation;  and 
they  may  all  be  included  under  two  heads,  ownership  and 
taxation. 

By  far  the  greater  part  of  the  more  valuable  lands  of 
the  country  are  no  longer  under  the  ownership  of  the  State. 
Urban  land  is  practically  all  in  the  hands  of  private  pro- 
prietors. While  many  millions  of  acres  of  land  suitable 
for  agriculture  are  still  under  public  ownership,  almost  all 
of  this  area  requires  a  considerable  outlay  for  irrigation, 
clearing,  and  draining  before  it  can  become  productive. 
Forty  years  ago,  three-fourths  of  the  timber  now  standing 
was  public  property;  at  present  about  four-fifths  of  it  is 

94 


METHODS    OF    REFORMING   OUR    LAND    SYSTEM  95 

owned  by  private  persons  or  corporations.^  The  bulk  of 
our  mineral  deposits,  coal,  copper,  gold,  silver,  etc.,  have 
likewise  fallen  under  private  ownership,  with  the  exception 
of  those  of  Alaska.  The  undeveloped  water  power  re- 
maining under  government  ownership  has  been  roughly- 
estimated  at  fourteen  million  horse  power  in  the  national 
forests,  and  considerably  less  than  that  amount  in  other 
parts  of  the  public  domain.^  This  is  a  gratifying  propor- 
tion of  the  whole  supply,  developed  and  undeveloped,  of 
this  national  resource,  which  is  said  to  be  somewhere  be- 
tween 27  and  60  millions  horse  power.^  Only  about  seven 
million  horse  power  has  yet  been  developed,  almost  all  of 
which  is  privately  owned. 

The  Leasing  System 

In  many  countries  of  Europe  it  has  long  been  the  policy 
of  governments  to  retain  ownership  of  all  lands  containing 
timber,  minerals,  oil,  natural  gas,  phosphate,  and  water 
power.  The  products  of  these  lands  are  extracted  and  put 
upon  the  market  through  a  leasing  system.  That  is;  the 
user  of  the  land  pays  to  the  State  a  rental  according  to  the 
amount  and  quality  of  raw  material  which  he  takes  from 
the  storehouse  of  nature.  Theoretically,  the  State  could 
sell  such  lands  at  prices  that  would  bring  in  as  much  rev- 
enue as  does  the  leasing  system ;  practically,  this  result  has 
never  been  attained.  The  principal  advantages  of  the  leas- 
ing arrangement  are :  to  prevent  the  premature  destruction 
of  forests,  the  private  monopolisation  of  limited  natural 
resources  (which  has  happened  in  the  case  of  the  anthracite 
coal  fields  of  Pennsylvania)  and  the  private  acquisition  of 
exceptionally  valuable  land  at  ridiculously  low  prices;  and 
to  enable  the  State  to  secure  just  treatment  for  the  con- 

1 "  Summary  of  Report  of  the  Commissioner  of  Corporations  on 
the  Timber  Industry  in  the  United  States,"  p.  3. 

2  "  Report  of  the  Commissioner  of  Corporations  on  Water  Power 
Development  in  the  United  States,"  pp.  193-195. 

3  Idem,  pp.  4,  5. 


96  DISTRIBUTIVE   JUSTICE 

sumer  and  the  labourer  by  stipulating  that  the  former  shall 
obtain  the  product  at  fair  prices,  and  that  the  latter  shall 
receive  fair  wages. 

This  example  should  be  followed  by  the  United  States. 
All  timber,  mineral,  gas,  oil,  and  water  power  lands  which 
have  not  been  alienated  to  private  persons  should  remain 
under  government  ownership,  and  be  brought  into  use 
through  a  leasing  arrangement  which  would  enable  the 
private  operators  to  obtain  the  rates  of  profit  and  interest 
which  are  ordinarily  yielded  by  enterprises  subject  to  the 
same  degree  of  risk.  Happily  this  policy  now  seems  likely 
to  be  adopted.  In  19 13  a  law  was  passed  by  the  United 
States  providing  for  the  operation  of  the  coal  mines  of 
Alaska  on  leases.  The  amount  that  can  be  leased  by  any 
person  or  corporation  is  limited  to  2560  acres,  and  the 
penalty  for  attempting  to  monopolise  the  product  is  for- 
feiture of  tenure.  The  Secretary  of  the  Interior  has  urged 
a  similar  arrangement  for  the  development  and  extraction 
of  water  power,  coal,  oil,  gas,  phosphate,  sodium,  and 
potassium  on  the  public  domain  of  Continental  United 
States,  and  his  recommendation  will  probably  be  adopted 
by  Congress.  Thus  the  rent  of  these  lands  will  go  to  the 
whole  people  instead  of  to  a  comparatively  small  number 
of  individuals,  monopoly  of  the  products  will  be  made  im- 
possible, and  our  remaining  public  resources  will  be  pro- 
tected from  rapid  and  ruinous  exploitation. 

To  the  objection  that  capitalists  will  not  invest  their 
money  in  nor  carry  on  extractive  enterprises  on  a  leasing 
basis,  the  sufficient  answer  is  that  they  are  doing  it  now. 
In  1909,  24.5  per  cent,  of  all  the  lands  producing  minerals, 
precious  metals,  and  stone;  94.6  per  cent,  of  the  lands  pro- 
ducing petroleum  and  gas;  and  61.2  per  cent,  of  the  two 
groups  of  lands  combined,  were  operated  under  leases  from 
private  owners  or  from  the  government.^  If  the  rental  or 
royalty  demanded  is  not  unreasonably  high  capitalists  will 

1 "  Abstract  of  the  Thirteenth  Census,"  p.  552. 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM  97 

be  quite  as  willing  to  produce  raw  materials  of  these  kinds 
from  leased  land  as  they  are  to  manufacture  or  sell  goods 
in  a  rented  building.  Not  the  leasing  system,  but  the  terms 
of  the  particular  lease  are  the  important  consideration. 

Public  grazing  lands  should  remain  government  prop- 
erty until  such  time  as  they  become  available  for  agricul- 
ture. Cattle  owners  could  lease  the  land  from  the  State 
on  equitable  terms,  and  receive  ample  protection  for  money 
invested  in  improvements. 

Public  Agricultural  Lands 

The  leasing  system  cannot  well  be  applied  to  agricultural 
lands.  In  order  that  they  may  be  continuously  improved 
and  protected  against  deterioration,  they  must  be  owned  by 
the  cultivators.  The  temptation  to  wear  out  a  piece  of 
land  quickly,  and  then  move  to  another  piece,  and  all  the 
other  obstacles  that  stand  in  the  way  of  the  Single  Tax  as 
applied  to  agricultural  land,  show  that  the  government 
cannot  with  advantage  assume  the  function  of  landlord  in 
this  domain.  In  the  great  majority  of  cases  the  State 
would  do  better  to  sell  the  land  in  small  parcels  to  genuine 
settlers.  There  are,  indeed,  many  situations,  especially  in 
connection  with  government  projects  of  irrigation,  clear- 
ing, and  drainage,  in  which  the  leasing  arrangement  could 
be  adopted  temporarily.  It  should  not  be  continued  longer 
than  is  necessary  to  enable  the  tenants  to  become  owners. 
With  this  end  in  view  the  State  should  make  loans  to  cul- 
tivators at  moderate  rates  of  interest,  as  is  done  in  New 
Zealand  and  Australia. 

Whether  the  State  ought  to  purchase  undeveloped  land 
from  private  owners  in  order  to  sell  it  to  settlers,  may  well 
be  doubted.  The  only  lands  to  which  such  a  scheme  would 
be  at  all  applicable  are  large  estates  which  are  held  out  of 
use  by  their  proprietors.  Even  here  the  transfer  of  the 
land  to  cultivators  could  be  accomplished  indirectly, 
through   an   extra  heavy  tax.     This   method   has   been 


98  DISTRIBUTIVE   JUSTICE 

adopted  with  success  by  Australia  and  New  Zealand.  The 
only  other  action  by  the  State  that  seems  necessary  or  wise 
in  order  to  place  settlers  upon  privately  owned  agricultural 
land,  is  the  establishment  of  a  comprehensive  system  of 
rural  credits.  The  need  of  cheaper  food  products,  and  the 
desirability  of  checking  the  abnormal  growth  of  our  urban 
populations,  are  powerful  additional  reasons  for  the  adop- 
tion of  this  policy.  The  Hollis  Rural  Credits  Bill  recently 
enacted  into  law  by  Congress  goes  a  considerable  way  to- 
ward meeting  these  needs. 

Public  Ownership  of  Urban  Land 

No  city  should  part  with  the  ownership  of  any  land  that 
it  now  possesses.  Since  capitalists  are  willing  to  erect 
costly  buildings  on  sites  leased  from  private  owners,  there 
is  no  good  reason  why  any  one  should  refuse  to  put  up  or 
purchase  any  sort  of  structure  on  land  owned  by  the 
municipality.  The  situation  differs  from  that  presented  by 
agricultural  land;  for  the  value  of  the  land  can  easily  be 
distinguished  from  that  of  improvements,  the  owner  of  the 
latter  can  sell  them  even  if  he  is  not  the  owner  of  the  land, 
and  he  cannot  be  deprived  of  them  without  full  compensa- 
tion. While  the  lessee  paid  his  annual  rent,  his  control  of 
the  land  would  be  as  complete  and  certain  as  that  of  the 
landowner  who  continues  to  pay  his  taxes.  On  the  other 
hand,  the  leaseholder  could  not  permit  or  cause  the  land  to 
deteriorate  if  he  would;  for  the  nature  of  the  land  renders 
this  impossible.  Finally,  the  official  activities  involved  in 
the  collection  of  the  rent  and  the  periodical  revaluation  of 
the  land,  would  not  differ  essentially  from  those  now  re- 
quired to  make  assessments  and  gather  taxes. 

The  benefits  of  this  system  would  be  great  and  manifest. 
Persons  who  were  unable  to  own  a  home  because  of  their 
inability  to  purchase  land,  could  get  secure  possession  of 
the  necessary  land  through  a  lease  from  the  city.  Instead 
of  spending  all  their  lives  in  rented  houses,  thousands  upon 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM  99 

thousands  of  families  could  become  the  owners  and  occu- 
piers of  homes.  The  greater  the  amount  of  land  thus 
owned  and  leased  by  the  city,  the  less  would  be  the  power 
of  private  owners  to  hold  land  for  exorbitant  prices.  Com- 
petition with  the  city  would  compel  them  to  sell  the  land  at 
its  revenue-producing  value  instead  of  at  its  speculative 
value.  Finally,  the  city  would  obtain  the  benefit  of  every 
increase  in  the  value  of  its  land  by  means  of  periodical  re- 
valuation, and  periodical  readjustment  of  rent. 

Unfortunately  the  amount  of  municipal  land  available 
for  such  an  arrangement  in  our  American  cities  is  negli- 
gible. If  they  are  to  establish  the  system  they  must  first 
purchase  the  land  from  private  owners.  Undoubtedly  this 
ought  to  be  done  by  all  large  cities  in  which  the  housing 
problem  has  become  acute,  and  the  value  of  land  is  con- 
stantly rising.  This  policy  has  been  adopted  with  happy 
results  by  many  of  the  municipalities  of  France  and  Ger- 
many.^ At  the  state  election  of  191 5  the  voters  of  Massa- 
chusetts adopted  by  an  overwhelming  majority  a  constitu- 
tional amendment  authorising  the  cities  of  the  common- 
wealth to  acquire  land  for  prospective  home  builders.  In 
Savannah,  Georgia,  no  extension  of  the  municipal  limits  is 
made  until  the  land  to  be  embraced  has  passed  into  the 
ownership  of  the  city.  Another  method  is  to  refrain  from 
opening  a  new  street  in  a  suburban  district  until  the  city 
has  become  the  proprietor  of  the  abutting  land.  Whatever 
be  the  particular  means  adopted,  the  objects  of  municipal 
purchase  and  ownership  of  land  are  definite  and  obvious :  to 
check  the  congestion  of  population  in  the  great  urban  cen- 
tres, to  provide  homes  for  the  homeless,  and  to  secure  for 
the  whole  community  the  socially  occasioned  increases  in 
land  values.  Indeed,  it  is  probable  that  no  comprehensive 
scheme  of  housing  reform  can  be  reahsed  without  a  con- 
siderable amount  of  land  purchase  by  the  municipalities. 
Cities  must  be  in  a  position  to  provide  sites  for  those  home 

1  C£.  Marsh,  "  Land  Value  Taxation  in  American  Cities,"  p.  95. 


lOO  DISTRIBUTIVE   JUSTICE 

builders  who  cannot  obtain  land  on  fair  conditions  from 
private  proprietors.^ 

Turning  now  from  the  direct  method  of  public  owner- 
ship to  the  indirect  method  of  reform  through  taxation,  we 
reject  the  thoroughgoing  proposals  of  the  Single  Taxers. 
To  appropriate  all  economic  rent  for  the  public  treasury 
would  be  to  transfer  all  the  value  of  land  without  compen- 
sation from  the  private  owner  to  the  State.  For  example : 
a  piece  of  land  that  brought  to  the  owner  an  annual  revenue 
of  one  hundred  dollars  would  be  taxed  exactly  that  amount ; 
if  the  prevailing  rate  of  interest  were  five  per  cent,  the  pro- 
prietor would  be  deprived  of  wealth  to  the  amount  of  two 
thousand  dollars;  for  the  value  of  all  productive  goods  is 
determined  by  the  revenue  that  they  yield,  and  benefits  the 
person  who  receives  the  revenue.  Thus  the  State  would 
become  the  beneficiary  and  the  virtual  owner  of  the  land. 
Inasmuch  as  we  do  not  admit  that  the  so-called  social  crea- 
tion of  land  values  gives  the  State  a  moral  right  to  these 
values,  we  must  regard  the  complete  appropriation  of  eco- 
nomic rent  through  taxation  as  an  act  of  pure  and  simple 
confiscation.^ 

Appropriating  Future  Increases  of  Land  Value 

Let  us  examine,  then,  the  milder  suggestion  of  John 
Stuart  Mill,  that  the  State  should  impose  a  tax  upon  land 
sufficient  to  absorb  all  future  increases  in  its  value.^  This 
scheme  is  commonly  known  as  the  appropriation  of  future 
unearned  increment.  Either  in  whole  or  in  part  it  is  at 
least  plausible,  and  is  to-day  within  the  range  of  practical 

1  Municipal  purchase  and  ownership  of  land  have  been  advocated 
by  such  a  conservative  authority  as  the  Rev.  Heinrich  Pesch,  S.  J. 
"  Lehrbuch  der  Nationaloekonomie,"  I,  203. 

2  As  we  shall  see  in  a  later  chapter,  the  confiscation  and  injustice 
would  be  smaller  if  the  State  should  simultaneously  abolish  interest. 
In  any  case,  the  decline  in  land  value  resulting  from  complete  con- 
fiscation of  rent  should  be  made  up  to  the  private  owner  by  public 
compensation. 

8  "  Principles  of  Political  Economy,"  book  V,  ch.  2,  sect.  v. 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        lOI 

discussion.  It  is  expected  to  obtain  for  the  whole  commu- 
nity all  future  increases  in  land  values,  and  to  wipe  out  the 
speculative,  as  distinguished  from  the  revenue-producing 
value  of  land.  Consequently  it  would  make  land  cheaper 
and  more  accessible  than  would  be  the  case  if  the  present 
system  of  land  taxation  were  continued.  Before  discussing 
its  moral  character,  let  us  see  briefly  whether  the  ends  that 
it  seeks  may  properly  be  sought  by  the  method  of  taxation. 
For  these  ends  are  mainly  social  rather  than  fiscal. 

To  use  the  taxing  power  for  a  social  purpose  is  neither 
unusual  nor  unreasonable.  "  All  governments,"  says 
Professor  Seligman,  "  have  allowed  social  considerations  in 
the  wider  sense  to  influence  their  revenue  policy.  The 
whole  system  of  productive  duties  has  been  framed  not 
merely  with  reference  to  revenue  considerations,  but  in 
order  to  produce  results  which  should  directly  affect  social 
and  national  prosperity.  Taxes  on  luxuries  have  often 
been  mere  sumptuary  laws  designed  as  much  to  check  con- 
sumption as  to  yield  revenue.  Excise  taxes  have  as  fre- 
quently been  levied  from  a  wide  social,  as  from  a  narrow 
fiscal,  standpoint.  From  the  very  beginning  of  all  tax  sys- 
tems these  social  reasons  have  often  been  present."  ^  Our 
Federal  taxes  on  imports,  on  intoxicating  liquors,  on  oleo- 
margarine, and  on  white  phosphorus  matches,  and  many 
of  the  license  taxes  in  our  municipalities,  as  on  pedlars, 
saloon  keepers,  and  dog  owners,  are  in  large  part  intended 
to  meet  social  as  well  as  fiscal  ends.  They  are  in  the  inter- 
est of  domestic  production,  public  health,  and  public  safety. 
The  reasonableness  of  effecting  social  reforms  through  tax- 
ation cannot  be  seriously  questioned.  While  the  mainte- 
nance of  government  is  the  primary  object  of  taxation,  its 
ultimate  end,  the  ultimate  end  of  government  itself,  is  the 
welfare  of  the  people.  Now  if  the  public  welfare  can  be 
promoted  by  certain  social  changes,  and  if  these  in  turn  can 
be  effected  through  taxation,  this  use  of  the  taxing  power 

1 "  Progressive  Taxation  in  Theory  and  Practice,"  1908,  p.  130. 


I02  DISTRIBUTIVE  JUSTICE 

will  be  quite  as  normal  and  legitimate  as  though  it  were 
employed  for  the  upkeep  of  government.  Hence  the  moral- 
ity of  taxing  land  for  purposes  of  social  reform  will  de- 
pend entirely  upon  the  nature  of  the  particular  tax  that  is 
imposed. 

Some  Objections  to  the  Increment  Tax 

The  tax  that  we  are  now  considering  can  be  condemned 
as  unjust  on  only  two  possible  grounds :  first,  that  it  would 
be  injurious  to  society;  and,  second,  that  it  would  wrong 
the  private  landowner.  If  it  were  fairly  adjusted  and  ef- 
ficiently administered  it  could  not  prove  harmful  to  the 
community.  In  the  first  place,  landowners  could  not  shift 
the  tax  to  the  consumer.  All  the  authorities  on  the  subject 
admit  that  taxes  on  land  stay  where  they  are  put,  and  are 
paid  by  those  upon  whom  they  are  levied  in  the  first  in- 
stance.^ The  only  way  in  which  the  owners  of  a  commod- 
ity can  shift  a  tax  to  the  users  or  consumers  of  it,  is  by 
limiting  the  supply  until  the  price  rises  sufficiently  to  cover 
the  tax.  By  the  simple  device  of  refusing  to  erect  more 
buildings  until  those  in  existence  have  become  scarce  enough 
to  command  an  increase  in  rent  equivalent  to  the  new  tax, 
the  actual  and  prospective  owners  of  buildings  can  pass  the 
tax  on  to  the  tenants  thereof.  By  refusing  to  put  their 
money  into,  say,  shoe  factories,  investors  can  limit  the  sup- 
ply of  shoes  until  any  new  tax  on  this  commodity  is  shifted 
upon  the  wearers  of  shoes  in  the  form  of  higher  prices, 
llntil  these  rises  take  place  in  the  rent  of  buildings  and  the 
price  of  shoes,  investors  will  put  their  money  into  enter- 
prises which  are  not  burdened  with  equivalent  taxes.  But 
nothing  of  this  sort  can  follow  the  imposition  of  a  new  tax 
upon  land.  The  supply  of  land  is  fixed,  and  cannot  be  af- 
fected by  any  action  of  landowners  or  would-be  landown- 
ers.    The  users  of  land  and  the  consumers  of  its  products 

1  Cf.  Taussig,  "  Principles  of  Economics,"  II,  516 :  Seligman,  "  The 
Shifting  and  Incidence  of  Taxation,"  p.  223. 


METHODS    OF    REFORMING   OUR    LAND    SYSTEM        IO3 

are  at  present  paying  all  that  competition  can  compel  them 
to  pay.  They  would  not  pay  more  merely  because  they 
were  requested  to  do  so  by  landowners  who  were  labouring 
under  the  burden  of  a  new  tax.  If  all  landowners  were  to 
carry  out  an  agreement  to  refrain  from  producing,  and  to 
withhold  their  land  from  others  until  rents  and  prices  had 
gone  up  sufficiently  to  offset  the  tax,  they  could,  indeed, 
shift  the  latter  to  the  renters  of  land  and  the  consumers  of 
its  products.  Such  a  monopoly,  however,  is  not  within  the 
range  of  practical  achievement.  In  its  absence,  individual 
landowners  are  not  likely  to  withhold  land  nor  to  discon- 
tinue production  in  sufficient  numbers  to  raise  rents  or 
prices.  Indeed,  the  tendency  will  be  all  the  other  way ;  for 
all  landowners,  including  the  proprietors  of  land  now 
vacant,  will  be  anxious  to  put  their  land  to  the  best  use  in 
order  to  have  the  means  of  paying  the  tax.  Owing  to  this 
increased  production,  and  the  increased  willingness  to  sell 
and  let  land,  rents  and  prices  must  fall.  It  is  axiomatic 
that  new  taxes  upon  land  always  make  it  cheaper  than  it 
would  have  been  otherwise,  and  are  beneficial  to  the  com- 
munity as  against  the  present  owners. 

In  the  second  place,  the  tax  in  question  could  not  injure 
the  community  on  account  of  discouraging  investment  in 
land.  Once  men  could  no  longer  hope  to  sell  land  at  an 
advance  in  price,  they  would  not  seek  it  to  the  extent  that 
they  now  do  as  a  field  of  investment.  For  the  same  reason 
many  of  the  present  owners  would  sell  their  holdings  sooner 
than  they  would  have  sold  them  if  the  tax  had  not  been 
levied.  From  the  viewpoint  of  the  public  the  outcome  of 
this  situation  would  be  wholly  good.  Land  would  be 
cheaper  and  more  easy  of  access  to  all  who  desired  to  buy 
or  use  it  for  the  sake  of  production,  rather  than  for  the 
sake  of  speculation.  Investments  in  land  which  have  as 
their  main  object  a  rise  in  value  are  an  injury  rather  than  a 
benefit  to  the  community ;  for  they  do  not  increase  the  prod- 
ucts of  land,  while  they  do  advance  its  price,  thereby  keep- 


I04  DISTRIBUTIVE   JUSTICE 

ing  it  out  of  use.  Hence  the  State  should  discourage  in- 
stead of  encouraging  mere  speculators  in  land.  Whether 
it  is  or  is  not  bought  and  sold,  the  supply  of  land  remains 
the  same.  The  supreme  interest  of  the  community  is  that 
it  should  be  put  to  use,  and  made  to  supply  the  wants  of  the 
people.  Consequently  the  only  land  investments  that  help 
the  community  are  those  that  tend  to  make  the  land  pro- 
ductive. Under  a  tax  on  future  increases  in  value,  such 
investments  would  increase  for  the  simple  reason  that  land 
would  be  cheaper  than  it  would  have  been  without  the  tax. 
Men  who  desired  land  for  the  sake  of  its  rent  or  its  product 
would  continue  as  now  to  pay  such  prices  for  it  as  would 
enable  them  to  obtain  the  prevailing  rate  of  interest  on  their 
investment  after  all  charges,  including  taxes,  had  been  paid. 
Men  who  wanted  to  rent  land  would  continue  as  now  to  get 
it  at  a  rental  that  would  give  them  the  usual  return  for 
their  capital  and  labour. 

So  much  for  the  effect  of  the  tax  upon  the  community. 
Would  it  not,  however,  be  unjust  to  the  landowners  ?  Does 
not  private  ownership  of  its  very  nature  demand  that  in- 
creases in  the  value  of  the  property  should  go  to  the  owners 
thereof  ?  "  Res  f ructificat  domino :  "  a  thing  fructifies  to 
its  owner;  and  value-increases  may  be  classed  as  a  kind  of 
fruit. 

In  the  first  place,  this  formula  was  originally  a  dictum  of 
the  civil  law  merely,  the  law  of  the  Roman  Empire.  It  was 
a  legal  rather  than  an  ethical  maxim.  Whatever  validity 
it  has  in  morals  must  be  established  on  moral  grounds,  by 
moral  arguments.  It  cannot  forthwith  be  assumed  to  be 
morally  sound  on  the  mere  authority  of  legal  usage.  In 
the  second  place,  it  was  for  a  long  time  applied  only  to 
natural  products,  to  the  grain  grown  in  a  field,  to  the  off- 
spring of  domestic  animals.  It  simply  enunciated  the 
policy  of  the  law  to  defend  the  owner  of  the  land  in  his 
claim  to  such  fruits,  as  against  any  outsider  who  should 
attempt  to  set  up  an  adverse  title  through  mere  appropria- 


METHODS    OF    REFORMING   OUR    LAND    SYSTEM        IO5 

tion  or  possession.  Thus  far,  the  formula  was  evidently 
in  conformity  with  reason  and  justice.  Later  on  it  was 
extended,  both  by  lawyers  and  moralists,  to  cover  com- 
mercial *'  fruits,"  such  as,  rent  from  lands  and  houses, 
and  interest  from  loans  and  investments.  Its  validity  in 
this  field  will  be  examined  in  connection  with  the  justifica- 
tion of  interest.  More  recently  the  maxim  has  received 
the  still  wider  application  which  we  are  now  considering. 
Obviously  increases  in  value  are  quite  a  different  thing 
from  the  concrete  fruit  of  the  land,  its  natural  product.  A 
right  to  the  latter  does  not  necessarily  and  forthwith  imply 
a  right  to  the  former.  In  the  third  place,  the  formula  in 
question  is  not  a  self  evident,  fundamental  principle.  It 
is  merely  a  summary  conclusion  drawn  from  the  considera- 
tion of  the  facts  and  principles  of  social  and  industrial 
life.  Consequently  its  validity  as  applied  to  any  particular 
situation  will  depend  on  the  correctness  of  these  premises, 
and  on  the  soundness  of  the  process  by  which  it  has  been 
deduced. 

The  increment  tax  is  sometimes  opposed  on  the  ground 
that  it  is  new,  in  fact,  revolutionary.  In  some  degree  the 
charge  is  true,  but  the  conditions  which  the  proposal  is 
intended  to  meet  are  likewise  of  recent  origin.  The  case 
for  this  legislation  rests  mainly  on  the  fact  that,  for  the 
first  time  in  the  world's  history,  land  values  everywhere 
show  an  unmistakable  tendency  to  advance  indefinitely. 
This  means  that  the  landowning  minority  will  be  in  a  posi- 
tion to  reap  unbought  and  continuous  benefits  at  the  ex- 
pense of  the  landless  majority.  This  new  fact,  with  its 
very  important  significance  for  human  welfare,  may  well 
require  a  new  limitation  on  the  right  of  property  in  land. 

It  is  also  objected  that  to  deprive  men  of  the  opportu- 
nity of  profiting  by  changes  in  the  value  of  their  land  would 
be  an  unfair  discrimination  against  one  class  of  propri- 
etors. But  there  are  good  reasons  for  making  the  dis- 
tinction.    Except  in  the  case  of  monopoly,  increases  in 


I06  DISTRIBUTIVE   JUSTICE 

the  value  of  goods  other  than  land  are  almost  always  due 
to  expenditures  of  labour  or  money  upon  the  goods  them- 
selves. The  value  increases  that  can  be  specifically  traced 
to  external  and  social  influences  are  intermittent,  uncer- 
tain, and  temporary.  Houses,  furniture,  machinery,  and 
every  other  important  category  of  artificial  goods  are  per- 
ishable, and  decline  steadily  in  value.  Land,  however,  is 
substantially  imperishable,  becomes  steadily  scarcer  rela- 
tively to  the  demand,  and  its  value-increases  are  on  the 
whole  constant,  certain,  and  permanent.  Moreover,  it  is 
the  settled  policy  of  most  enlightened  governments  to  ap- 
propriate or  to  prevent  all  notable  increases  in  the  value 
of  monopolistic  goods,  either  through  special  taxation  or 
through  regulation  of  prices  and  charges.  Taking  the 
increment  values  of  land  is,  therefore,  not  so  discrimina- 
tive as  it  appears  at  first  glance.^ 

1  The  "  discrimination "  objection  is  put  in  a  somewhat  different 
form  by  the  Rev.  Sydney  F.  Smith,  S.  J.,  in  an  article  in  The  Month, 
Sept.,  1909,  entitled  "  The  Theory  of  Unearned  Increment."  His 
argument  is  in  substance  that  if  the  people  of  a  city  can  claim  the 
increases  in  land  values  which  their  presence  and  activity  have  oc- 
casioned, the  purchasers  of  food,  clothes,  books,  or  concert  tickets  are 
equally  justified  in  claiming  that,  "  having  added  to  the  value  of  the 
shops  and  music  halls,  they  had  acquired  a  co-proprietary  right  in  the 
increased  value  of  the  owners'  stock,  and  the  owners'  premises." 
While  this  argument  is  specifically  directed  against  those  who  main- 
tain that  the  "  social  production  "  of  values  confers  a  right  thereto, 
it  affects  to  some  extent  our  thesis  that  there  is  a  vast  difference  be- 
tween value-increases  in  land  and  in  other  goods.  Father  Smith  seems 
to  confuse  the  origination  of  value  with  the  increase  of  value.  The 
presence  of  consumers  is  an  obvious  prerequisite  to  the  existence  of 
any  value  at  all  in  any  kind  of  goods,  but  labour  and  financial  outlay 
on  the  part  of  the  producers  of  the  goods  are  an  equally  indispensable 
prerequisite.  The  reason  why  the  value  is  appropriated  by  the  latter 
rather  than  the  former  is  that  this  is  clearly  the  only  rational  method 
of  distribution.  What  we  are  concerned  with  here,  however,  is  not 
this  initial  or  cost-of-production-value  of  artificial  goods,  but  the  in- 
creases in  value  above  this  level  which  are  brought  about  by  external 
and  social  influences.  Theoretically,  the  State  could  as  reasonably 
take  these  as  the  increases  in  the  value  of  land ;  practically,  such  a 
performance  is  out  of  the  question,  for  the  simple  reason  that  such 
increases  are  spasmodic  and  exceptional.  If  Father  Smith  thinks  that 
"  food  or  clothes,  or  books,  or  concert  tickets  "  regularly  advance  above 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        IO7 

Another  objection  is  that  the  proposal  would  violate  the 
canons  of  just  taxation,  since  it  would  impose  a  specially 
heavy  burden  upon  one  form  of  property.  The  general 
doctrine  of  justice  in  taxation  which  is  held  by  substan- 
tially all  economists  to-day,  and  which  has  been  taught  by 
Catholic  moralists  for  centuries,  is  that  known  as  the 
"  faculty  "  theory.^  Men  should  be  taxed  in  proportion 
to  their  ability  to  pay,  not  in  accordance  with  the  benefits 
that  they  may  be  assumed  to  receive  from  the  State.  And 
it  is  universally  recognised  that  the  proper  measure  of 
"  ability  "  is  not  a  man's  total  possessions,  productive  and 
unproductive,  but  his  income,  his  annual  revenue.  Now, 
the  increment  tax  does  seem  to  violate  the  rule  of  taxation 
according  to  ability,  inasmuch  as  it  would  take  all  of  one 
species  of  revenue,  while  all  other  incomes  and  properties 
pay  only  a  certain  percentage. 

All  the  adherents  of  the  faculty  theory  maintain,  how- 
ever, that  it  is  subject  to  certain  modifications.  Incomes 
from  interest,  rent,  and  socially  occasioned  increases  in 
the  value  of  property  should  be  taxed  at  a  higher  rate 
than  incomes  that  represent  expenditures  of  labour;  for 
to  give  up  a  certain  per  cent,  of  the  former  involves  less 
sacrifice  than  to  give  up  the  same  per  cent,  of  the  latter. 
Therefore,  increments  of  land-value  may  be  fairly  taxed 
at  a  higher  rate  than  salaries,  personal  property,  or  even' 
rent  and  interest.  When,  however,  the  law  absorbs  the 
whole  of  the  value  increments,  it  seems  to  be  something 
more  than  a  tax.     The  essential  nature  of  a  tax  is  to  take 

the  cost-of-production-value,  he  is  simply  mistaken.  Since  these  and 
other  artificial  goods  bring  to  their  owners  as  a  rule  no  socially  oc- 
casioned increments  of  value,  they  and  their  owners  are  in  quite  a 
different  situation  from  land  and  the  owners  of  land. 

1  Cf.  Seligman,  "  Progressive  Taxation  in  Theory  and  Practice," 
part  II,  chs.  ii  and  iii ;  also  the  classic  refutation  of  the  "benefit" 
theory  by  John  Stuart  Mill  in  "  Principles  of  Political  Economy," 
book  V,  ch.  ii,  sec.  2.  The  traditional  Catholic  teaching  on  the  sub- 
ject is  comp^tly  stated  by  Cardinal  de  Lugo  in  "  De  Justitia  et  Jure," 
disp.  36;  cf.  Devas,  "  Political  Economy,"  p.  594,  2d  ed. 


I08  DISTRIBUTIVE   JUSTICE 

only  a  portion  of  the  particular  class  of  income  or  prop- 
erty upon  which  it  is  imposed.  The  nearest  approach  to 
the  plan  of  taking  all  future  increases  in  land  value  is  to 
be  found  in  the  special  assessments  that  are  levied  in  many 
American  cities.  Thus,  the  owners  of  urban  lots  are  fre- 
quently compelled  to  defray  the  entire  cost  of  street  im- 
provements on  the  theory  that  their  land  is  thereby  and 
to  that  extent  increased  in  value.  In  such  cases  the  con- 
tribution is  levied  not  on  the  basis  of  the  faculty  theory, 
but  on  that  of  the  benefit  theory;  that  is,  the  owners  are 
required  to  pay  in  proportion  to  benefits  received.  All 
adherents  of  the  faculty  theory  admit  that  the  benefit 
theory  is  justifiably  applied  in  situations  of  this  kind.  It 
might  be  argued  that  the  latter  theory  can  also  be  fairly 
applied  to  increments  of  land  value  that  are  to  arise  in  the 
future.  In  both  cases  the  owner  returns  to  the  State  the 
equivalent  of  benefits  which  have  cost  him  nothing. 
There  is,  however,  a  difference.  In  the  former  case  the 
value  increases  are  specifically  due  to  expenditures  made 
by  the  State,  while  in  the  latter  they  are  indirectly  brought 
about  by  the  general  activities  of  the  community.  We 
do  not  admit  with  the  Single  Taxers  that  this  "  social 
production  "  of  value  increments  creates  a  right  thereto 
on  the  part  of  either  the  community  or  the  civil  body;  but 
even  if  we  did  we  should  be  compelled  to  admit  that  the 
two  situations  are  not  exactly  parallel;  for  the  social  pro- 
duction of  increases  in  the  value  of  land  involves  no  special 
expenditure  of  labour  or  money.  Hence  it  is  very  ques- 
tionable whether  the  appropriation  of  the  whole  of  the 
future  value  increments  can  be  harmonised  with  the  re- 
ceived conceptions  and  applications  of  the  canons  of  tax- 
ation. 

The  Morality  of  the  Proposal 

However,  it  is  neither  necessary  nor  desirable  to  justify 
the  proposal  on  the  mere  ground  of  taxation.     Only  in 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        IO9 

form  and  administration  is  it  a  tax;  primarily  and  in  es- 
sence it  is  a  method  of  distribution.  It  resembles  the 
action  by  which  the  State  takes  possession  of  a  newly  dis- 
covered territory  by  the  title  of  first  occupancy.  The 
future  increases  of  land  value  may  be  regarded  as  a  sort 
of  no  man's  property  which  the  State  appropriates  for  the 
benefit  of  the  community.  And  the  morality  of  this  pro- 
ceeding must  be  determined  by  the  same  criterion  that  is 
applied  to  every  other  method  or  rule  of  distribution; 
namely,  social  and  individual  consequences.  No  principle, 
title,  or  practice  of  ownership,  nor  any  canon  of  taxation, 
has  intrinsic  or  metaphysical  value.  All  are  to  be  evalu- 
ated with  reference  to  human  welfare.  Since  the  right  of 
property  is  not  an  end  in  itself,  but  only  a  means  of  human 
welfare,  its  just  prerogatives  and  limitations  are  deter- 
mined by  their  conduciveness  to  the  welfare  of  human 
beings.  By  human  welfare  is  meant  not  merely  the  good 
of  society  as  a  whole,  but  the  good  of  all  individuals  and 
classes  of  individuals.  For  society  is  made  up  of  individ- 
uals, all  of  whom  are  of  equal  worth  and  importance,  and 
have  equal  claims  to  consideration  in  the  matter  of  liveli- 
hood, material  goods,  and  property.  In  general,  then,  any 
method  of  distribution,  any  modification  of  property 
rights,  any  form  of  taxation,  is  morally  lawful  which 
promotes  the  interests  of  the  whole  community,  without 
causing  undue  inconvenience  to  any  individual.  Whether 
a  given  rule  of  ownership  or  method  of  distribution  which 
is  evidently  conducive  to  the  public  good  is,  nevertheless, 
unduly  severe  on  a  certain  class  of  individuals,  is  a  ques- 
tion that  is  not  always  easily  answered.  Some  of  the 
methods  and  practices  appearing  in  history  were  clearly 
fair  and  just,  others  clearly  unfair  and  unjust,  and  still 
others  of  doubtful  morality.  Frequently  the  State  has 
compelled  private  persons  to  give  up  their  land  at  a  lower 
price  than  they  paid  for  it;  in  more  than  one  country 
freebooters  and  kingly  favourites  robbed  the  people  of  the 


no  DISTRIBUTIVE   JUSTICE 

land,  yet  their  heirs  and  successors  are  recognised  by  both 
moralists  and  statesmen  as  the  legitimate  owners  of  that 
land;  in  Ireland  stubborn  landlords  are  to-day  compelled 
by  the  British  government  to  sell  their  holdings  to  the 
tenants  at  an  appraised  valuation;  in  many  countries  men 
may  become  owners  of  their  neighbours'  lands  by  the  title 
of  prescription,  without  the  payment  of  a  cent  of  com- 
pensation. All  these  practices  and  titles  inflict  consider- 
able hardship  upon  individuals,  but  most  of  them  are  held 
to  be  justified  on  grounds  of  social  welfare. 

Now  the  public  appropriation  of  all  future  increments 
of  land  value  would  evidently  be  beneficial  to  the  commu- 
nity as  a  whole.  It  would  enable  all  the  people  to  profit 
by  gains  that  now  go  to  a  minority,  and  it  would  enable  the 
landless  majority  to  acquire  land  more  easily  and  more 
cheaply.  We  have  in  mind,  of  course,  only  those  value 
increases  that  are  not  due  to  improvements  in  or  on  the 
land,  and  we  assume  that  these  could  be  distinguished  in 
practice  from  the  increments  of  value  that  represent  im- 
provements. Would  the  measure  in  question  inflict  undue 
hardship  upon  individuals?  Here  we  must  make  a  dis- 
tinction between  those  persons  who  own  land  at  the  time 
that,  and  those  who  buy  land  after,  the  law  is  enacted. 

The  only  inconvenience  falling  upon  the  latter  class 
would  be  deprivation  of  the  power  to  obtain  future  in- 
creases in  value.  The  law  w^ould  not  cause  the  value  of  the 
land  to  decline  below  their  purchase  price.  Other  forces 
might,  indeed,  bring  about  such  a  result;  but,  as  a  rule, 
such  depreciation  would  be  relatively  insignificant,  for  the 
simple  reason  that  it  would  already  have  been  "  discounted  " 
in  the  reduction  of  value  which  followed  the  law  at  the 
outset.  The  very  knowledge  that  they  could  not  hope  to 
profit  by  future  increases  in  the  value  of  the  land  would 
impel  purchasers  to  lower  their  price  accordingly.  While 
taking  away  the  possibility  of  gaining,  the  law  enables  the 
buyers  to  take  the  ordinary  precautions  against  losing. 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        III 

Therefore,  it  does  not,  as  sometimes  objected,  lessen  the 
so  called  "  gambler's  chances."  On  the  other  hand,  the 
tax  does  not  deprive  the  owners  of  any  value  that  they 
may  add  to  the  land  through  the  expenditure  of  labour  or 
money,  nor  in  any  way  discourage  productive  effort. 
Now  it  is,  as  a  rule,  better  for  individuals  as  well  as  for 
society  that  men's  incomes  should  represent  labour,  ex- 
penditure, and  saving  instead  of  being  the  result  of  **  wind- 
falls," or  other  fortuitous  and  conjunctural  circumstances. 
And  the  power  to  take  future  value  increments  is  not  an 
intrinsically  essential  element  of  private  property  in  land. 
Like  every  other  condition  of  ownership,  its  morality  is 
determined  by  its  effects  upon  human  welfare.  But  we 
have  seen  in  the  last  paragraph  that  human  welfare  in  the 
sense  of  the  social  good  is  better  promoted  by  a  system  of 
landownership  which  does  not  include  this  element;  and 
we  have  just  shown  that  such  a  system  causes  no  undue 
hardship  to  the  individual  who  buys  land  after  its  estab- 
lishment. Such  is  the  answer  to  the  contention,  noticed  a 
few  pages  back,  that  the  landowner  has  a  right  to  future 
increments  of  value  because  they  are  a  kind  of  fruit  of 
his  property.  It  is  more  reasonable  that  he  should  not 
enjoy  this  particular  and  pecuhar  "  fruit."  Were  the  in- 
crement tax  introduced  into  a  new  community  before  any 
one  had  purchased  land,  it  would  clearly  be  a  fair  and 
valid  limitation  on  the  right  of  ownership.  Those  who 
should  become  owners  after  the  regulation  went  into  ef- 
fect in  an  old  community  would  be  in  exactly  the  same 
moral  and  economic  position.  Finally,  there  exists  some 
kind  of  legal  precedent  for  the  proposal  in  the  present 
policy  of  efficient  governments  with  regard  to  the  only  im- 
portant increases  that  occur  in  the  value  of  goods  other 
than  land;  namely,  increases  due  to  the  possession  of 
monopoly  power.  By  various  devices  these  are  either 
prevented  or  appropriated  by  the  State. 

Those  persons  who  are  landowners  when  the  increment 


112  DISTRIBUTIVE   JUSTICE 

tax  goes  into  effect  are  in  a  very  different  situation  from 
those  that  we  have  just  been  considering.  Many  of  them 
would  undoubtedly  suffer  injury  through  the  operation  of 
the  measure,  inasmuch  as  their  land  would  reach  and  main- 
tain a  level  of  value  below  the  price  that  they  had  paid  for  it. 
The  immediate  effect  of  the  increment  tax  would  be  a  de- 
cline in  the  value  of  all  land,  caused  by  men's  increased  de- 
sire to  sell  and  decreased  desire  to  buy.  In  all  growing 
communities  a  part  of  the  present  value  of  land  is  specula- 
tive ;  that  is,  it  is  due  to  demand  for  the  land  by  persons  who 
want  it  mainly  to  sell  at  an  expected  rise,  and  also  to  the 
disinclination  of  present  owners  to  sell  until  this  expecta- 
tion is  realised.  The  practical  result  of  the  attitude  of 
these  two  classes  of  persons  is  that  the  demand  for,  and 
therefore  the  value  of  land  is  considerably  enhanced.  Let 
a  law  be  enacted  depriving  them  of  all  hope  of  securing 
the  anticipated  increases  in  value,  and  the  one  group  will 
cease  to  buy,  while  the  other  will  hasten  to  sell,  thus  caus- 
ing a  decline  in  demand  relatively  to  supply,  and  therefore 
a  decline  in  value  and  price. 

All  persons  who  had  paid  more  for  their  land  than  the 
value  which  it  came  to  have  as  a  result  of  the  increment 
tax  law,  would  lose  the  difference.  For,  no  matter  how 
much  the  land  might  rise  in  value  subsequently,  the  in- 
crease would  all  be  taken  by  the  State.  And  all  owners 
of  vacant  land  the  value  of  which  after  the  law  was  passed 
did  not  remain  sufficiently  high  to  provide  accumulated  in- 
terest on  the  purchase  price,  would  also  lose  accordingly. 
To  be  sure,  both  these  kinds  of  losses  would  exist  even  if 
the  law  should  cause  no  decline  in  the  value  of  land,  but 
they  would  not  be  so  great  either  in  number  or  in  volume. 

Landowners  who  should  suffer  either  of  these  sorts  of 
losses  would  have  a  valid  moral  claim  against  the  State 
for  compensation.  Through  its  silence  on  the  subject  of 
increment-tax  legislation,  the  State  virtually  promised 
them  at  the  time  of  their  purchases  that  it  would  not  thus 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        II3 

interfere  with  the  ordinary  course  of  values.  Had  it 
given  any  intimation  that  it  would  enact  such  a  law  at  a 
future  time,  these  persons  would  not  have  paid  as  much 
for  their  land  as  they  actually  did  pay.  When  the  State 
passes  the  law,  it  violates  its  implicit  promise,  and  con- 
sequently is  under  obligation  to  make  good  the  resulting 
losses. 

Is  it  not  obliged  to  go  further,  and  pay  for  the  positive 
gains  that  many  of  the  owners  would  have  reaped  in  the 
absence  of  the  law?  For  example:  a  piece  of  land  is 
worth  one  thousand  dollars  the  day  after  the  tax  goes  into 
effect,  and  that  was  exactly  the  price  paid  for  it  by  the 
present  owner;  another  piece  has  the  same  value,  but  was 
bought  by  the  present  owner  for  eight  hundred  dollars. 
While  neither  of  these  men  suffer  any  loss  on  their  invest- 
ments, they  are  deprived  of  possible  gains;  for  had  the 
law  not  been  enacted  their  holdings  would  be  worth,  say, 
eleven  hundred  dollars.  Nevertheless,  they  are  no  worse 
off  in  this  respect  than  those  persons  who  buy  land  after 
the  increment  tax  goes  into  effect,  and  have  no  greater 
claim  to  compensation  for  abolished  opportunities  of  posi- 
tive gain.  As  we  have  seen  above,  the  certain  advantages 
of  the  measure  to  the  community,  the  doubtful  advantages 
to  individuals  of  profiting  by  changes  in  price  which  do 
not  represent  labour,  expense,  or  saving,  show  that  the 
owners  have  no  strict  right  to  compensation.  And  it  is 
still  clearer  that  no  landowner  has  a  valid  claim  on  ac- 
count of  value  increases  that  would  have  taken  place  sub- 
sequent to  the  time  that  the  measure  was  enacted.  There 
is  no  way  by  which  owners  who  would  have  held  their  land 
long  enough  to  profit  by  these  increments  can  be  distin- 
guished from  owners  who  would  not  have  availed  them- 
selves of  this  conjectural  opportunity,  nor  any  method  by 
which  the  amount  of  such  gains  can  be  determined. 

On  the  other  hand,  it  might  be  objected  that,  in  reim- 
bursing all  owners  who  suffer  the  positive  losses  above 


114  DISTRIBUTIVE   JUSTICE 

described,  the  State  is  unduly  generous;  for  if  the  law  had 
not  been  enacted  many  of  the  reimbursed  persons  would 
have  sold  their  holdings  at  a  price  insufficient  to  cover 
their  losses.  But  these  cannot  be  distinguished  from  those 
who  would  have  sold  at  a  remunerative  price.  Hence  the 
State  must  compensate  all  or  none.  The  former  alterna- 
tive is  not  only  the  more  just  all  round,  but  in  the  long 
run  the  more  expedient. 

In  view  of  the  social  benefits  of  the  increment  tax,  espe- 
cially the  removal  of  many  of  the  inequities  of  the  present 
taxing  system,  the  State  might  sometimes  be  justified  in 
making  good  only  a  part  of  the  losses  that  we  have  been  dis- 
cussing. But  this  could  probably  occur  only  for  adminis- 
trative reasons,  such  as  the  difficulty  of  determining  the 
persons  entitled  to  and  the  amounts  of  compensation.  It 
would  not  be  justified  merely  to  enable  the  State  to  profit 
at  the  expense  of  individuals.  And,  in  any  case,  there 
seems  to  be  no  good  reason  why  the  unpaid  losses  should 
amount  to  more  than  a  small  fraction  of  the  whole. 

In  the  foregoing  pages  we  have  been  considering  a  law 
which  would  from  the  beginning  of  its  operation  take  all 
the  future  increments  of  land  value.  There  is,  however, 
no  likelihood  that  any  such  measure  will  soon  be  enacted 
in  any  country,  least  of  all,  in  the  United  States.  What 
we  shall  probably  see  is  the  spread  of  legislation  designed 
to  take  a  part,  and  a  gradual  growing  part,  of  value  in- 
creases, after  the  example  of  Germany  and  Great  Britain. 
Let  us  glance  at  the  laws  in  force  in  these  two  countries. 

The  German  and  British  Increment  Taxes 

The  first  increment  tax  (Werthzuwachssteuer)  was  es- 
tablished in  the  year  1898  in  the  German  colony  of  Kiaut- 
schou,  China.  In  1904  the  principle  of  the  tax  was 
adopted  by  Frank  fort-am-Main,  and  in  1905  by  Cologne. 
By  April,  1910,  it  had  already  been  enacted  in  457  cities 
and  towns  of  Germany,  some  twenty  of  which  had  a  popu- 


METHODS   OF   REFORMING  OUR   LAND   SYSTEM        II5 

lation  of  more  than  100,000  each,  in  652  communes,  sev- 
eral districts,  one  principality,  and  one  grand  duchy.  In 
191 1  it  was  inserted  in  the  imperial  fiscal  system,  and  thus 
extended  over  the  whole  German  Empire.  While  these 
laws  are  all  alike  in  certain  essentials,  they  vary  greatly  in 
details.  They  agree  in  taking  only  a  per  cent,  of  the  value 
increases,  and  in  imposing  a  higher  rate  on  the  more  rapid 
increases.  The  rates  of  the  imperial  law  vary  from  ten 
per  cent,  on  increases  of  ten  per  cent,  or  less  to  thirty  per 
cent,  on  increases  of  290  per  cent,  or  over.  In  Dortmund 
the  scale  progresses  from  one  to  12^  per  cent.  Inas- 
much as  the  highest  rate  in  the  imperial  law  is  30  per  cent., 
and  in  any  municipal  law  (Cologne  and  Frankfort)  25 
per  cent. ;  inasmuch  as  all  the  laws  allow  deductions  from 
the  tax  to  cover  the  interest  that  was  not  obtained  while 
the  land  was  unproductive;  and  inasmuch  as  only  those 
increases  are  taxed  which  are  measured  from  the  value 
that  the  land  had  when  it  came  into  the  possession  of 
the  present  owner, —  it  is  clear  that  landowners  are  not 
obliged  to  undergo  any  positive  loss,  and  that  they  are  per- 
mitted to  retain  the  lion's  share  of  the  "  unearned  incre- 
ment." 1 

It  is  to  be  noted  that  most  of  the  German  laws  are  re- 
troactive, since  they  apply  not  merely  to  future  value  in- 
creases, but  to  some  of  those  that  occurred  before  the  law 
was  enacted.  Thus,  the  Hamburg  ordinance  measures  the 
increases  from  the  last  sale,  no  matter  how  long  ago  that 
transaction  took  place.  The  imperial  law  uses  the  same 
starting  point,  except  in  cases  where  the  last  sale  occurred 
before  1885.  Accordingly,  a  man  who  had  in  1880  paid 
2500  marks  for  a  piece  of  land  which  in  1885  was  worth 

1  Cf .  Fallon,  "  Les  Plus-Values  et  V  Impot,"  pp.  455,  sq. ;  Paris, 
1914;  Fillebrown,  "A  Single  Tax  Handbook  for  1913";  Boston,  1912; 
Marsh,  "Taxation  of  Land  Values  in  American  Cities,"  pp.  90-92; 
New  York,  1911 ;  "The  Quarterly  Journal  of  Economics,"  vols.  22, 
24,  25;  "The  Single  Tax  Review,"  March-April,  1912;  "  Stimmen  aus 
Maria-Laach,"  Oct.,  1907. 


Il6  DISTRIBUTIVE  JUSTICE 

only  2000  marks,  and  who  sold  it  for  3000  marks  after 
the  law  went  into  effect,  would  pay  the  increment  tax  on 
1000  marks, —  unless  he  could  prove  that  his  purchase 
price  was  2500  marks.  In  all  such  cases  the  burden  of 
proof  is  on  the  owner  to  show  that  the  value  of  the  land 
in  1885  was  lower  than  when  he  had  bought  it  at  the 
earlier  date.  Obviously  this  retroactive  feature  of  the 
German  legislation  inflicts  no  wrong  on  the  owner,  since 
it  does  not  touch  value  increases  that  he  has  paid  for. 
Indeed,  the  value  of  the  land  when  it  came  into  the  present 
owner's  possession  seems  to  be  a  fairer  and  more  easily 
ascertained  basis  from  which  to  reckon  increases  than  any 
date  subsequent  to  the  enactment  of  the  law.  On  the  one 
hand,  persons  whose  lands  had  fallen  in  value  during  their 
ownership  would  be  automatically  excluded  from  the  opera- 
tion of  the  law  until  such  time  as  the  acquisition  value  was 
again  reached;  on  the  other  hand,  those  owners  whose 
lands  had  increased  in  value  before  the  law  went  into  effect 
would  be  taxed  as  well  as  those  whose  gains  began  after 
that  event ;  thus  the  law  would  reach  a  greater  proportion 
of  the  existing  beneficiaries  of  "  unearned  increment." 
Moreover,  it  would  bring  in  a  larger  amount  of  revenue. 
The  British  law  formed  a  part  of  the  famous  Lloyd- 
George  budget  of  1909.  It  taxes  only  those  increments 
that  occur  after  its  enactment.  These  are  'Jubject  to  a 
tax  of  twenty  per  cent,  on  the  occasion  of  the  next  transfer 
of  the  land,  by  sale,  bequest,  or  otherwise.^  In  some  cases 
this  arrangement  will  undoubtedly  cause  hardship.  For 
example:  if  land  which  was  bought  for  1,000  pounds  in 
1900  had  fallen  to  800  pounds  in  1909,  and  were  sold  for 
1,000  pounds  in  191 5,  the  owner  would  have  to  pay  a  tax 
of  twenty  per  cent,  on  200  pounds.  This  would  mean  a 
net  loss  of  forty  pounds,  to  say  nothing  of  the  loss  of 
interest  in  case  the  land  was  unproductive.  It  would  seem 
that  some  compensation  ought  to  be  given  here;  yet  the 

1  See  the  references  in  the  second  last  paragraph. 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        II7 

rarity  of  such  instances,  the  administrative  difificulties,  and 
the  general  advantages  of  this  sort  of  legislation  quite  con- 
ceivably might  forbid  the  conclusion  that  the  owner  was 
made  to  suffer  certain  injustice.  The  compensating  social 
advantages  of  the  increment  tax  as  well  as  of  other  special 
taxes  on  land,  will  receive  adequate  discussion  presently. 

Transferring  Other  Taxes  to  Land 

Another  taxation  plan  for  reducing  the  evils  of  our  land 
system  consists  in  the  imposition  of  special  taxes  on  the 
present  value  of  land.  As  a  rule,  these  imply,  not  an  addi- 
tion to  the  total  tax  levy,  but  a  transfer  of  taxes  from 
other  forms  of  property.  The  usual  practice  is  to  begin 
by  exempting  either  partly  or  wholly  buildings  and  other 
kinds  of  improvements  from  taxation,  and  then  to  apply 
the  same  measure  to  certain  kinds  of  personal  property. 
In  most  cases  the  transfer  of  such  taxes  to  land  is  gradual, 
extending  over  a  period  of  five,  ten,  or  fifteen  years.  The 
plan  is  in  operation  in  Canada  and  Australasia,  and  to  a 
slight  extent  in  the  United  States, 

It  has  received  its  greatest  development  in  the  western 
provinces  of  Canada;  namely,  British  Columbia,  Alberta, 
Saskatchewan,  and  Manitoba.  The  cities  of  Edmonton, 
Medicine  Hat,  and  Red  Deer;  Vancouver,  Victoria,  and 
thirteen  others  of  the  thirty-three  cities  of  British  Columbia ; 
all  the  towns  of  Alberta  except  two;  all  but  one  of  the 
villages  of  Alberta,  and  one-fourth  of  those  in  Saskatche- 
wan; all  the  rural  municipalities  and  local  improvements 
districts  in  Alberta,  Manitoba,  and  Saskatchewan,  and  24 
of  the  28  in  British  Columbia, —  exempt  improvements 
entirely  from  taxation.  The  three  cities  in  Alberta  whicli 
retain  some  taxes  on  improvements;  all  the  cities  and 
towns  and  three- fourths  of  the  villages  in  Saskatchewan; 
the  four  largest  cities  in  Manitoba ;  and  a  considerable 
number  of  the  municipalities  in  Ontario  (by  the  device  of 
illegal  under-assessment  in  this  instance), —  tax  improve- 


Il8  DISTRIBUTIVE   JUSTICE 

merits  at  less  than  full  value,  in  some  cases  as  low  as  fifteen 
per  cent.  Land  is  invariably  assessed  at  its  full  value. 
It  is  to  be  observed  that  these  special  land  taxes  provide 
only  local  revenues;  they  do  not  contribute  anything  to 
the  maintenance  of  either  the  provincial  or  the  dominion 
governments.  The  reason  why  the  local  jurisdictions 
have  adopted  these  taxes  so  much  more  extensively  in 
Alberta  than  in  the  other  provinces  is  to  be  found  in  a 
provincial  law  enacted  in  191 2,  which  requires  all  towns, 
villages,  and  rural  areas  to  establish  within  seven  years  the 
practice  of  exempting  from  taxation  personal  property  and 
buildings.  Saskatchewan  permits  cities  and  towns  to  tax 
improvements  up  to  sixty  per  cent,  of  their  value,  while 
British  Columbia  and  Manitoba  leave  the  matter  entirely 
in  the  hands  of  the  local  authorities.  The  provincial 
revenues  are  derived  from  many  sources,  chiefly  real  estate, 
personal  property,  and  incomes;  but  British  Columbia, 
Saskatchewan,  and  Alberta  levy  a  special  tax  on  unim- 
proved and  only  slightly  improved  rural  land.  The  rate 
of  this  "  wild  lands  tax  "  is  in  British  Columbia  four  per 
cent.,  and  in  the  other  two  provinces  one  per  cent.  Some 
of  the  municipalities  of  British  Columbia  and  Saskatche- 
wan also  impose  a  "  wild  lands  tax."  By  a  law  passed  in 
19 1 3  Alberta  levies  a  provincial  tax  of  five  per  cent,  on 
the  value  increases  of  non-agricultural  lands.  A  move- 
ment for  the  reduction  of  the  tax  on  buildings  has  devel- 
oped considerable  strength  in  the  eastern  provinces  of 
Ontario,  Nova  Scotia,  and  New  Brunswick.^ 

New  Zealand  and  most  of  the  states  of  Australia  have 
for  several  years  levied  special  taxes  on  land,  consisting 
mainly  of  general  rates  on  estates  of  moderate  size,  and  a 

1  The  most  comprehensive  and  reliable  account  of  the  special  land 
taxes  in  Canada  is  contained  in  the  report  prepared  for  the  Committee 
on  Taxation  of  the  City  of  New  York,  by  Robert  Murray  Haig,  Ph.D., 
entitled,  "  The  Exemption  of  Improvements  from  Taxation  in  Canada 
and  the  United  States";  New  York,  1915.  See  also  Fallon,  op.  cit., 
pp.  452-455. 


METHODS   OF   REFORMING  OUR   LAND   SYSTEM        II9 

progressive  super  tax  on  large  estates.  The  Common- 
wealth of  Australia  also  imposes  a  tax  of  one  penny  in  the 
pound  on  the  value  of  land.  A  considerable  proportion  of 
the  cities  and  towns  in  both  New  Zealand  and  Australia 
derive  practically  all  their  revenues  from  land,  exempting 
improvements  entirely.  In  both  countries,  however,  the 
bulk  of  the  total  revenue  is  obtained  from  other  sources 
than  land  taxes.  In  New  Zealand  they  yield  less  than 
thirteen  per  cent,  of  the  national  receipts.^ 

Pittsburgh  and  Scranton  were  required  by  a  law  enacted 
in  19 1 3  to  reduce  the  local  tax  rate  on  buildings  at  such  a 
pace  that  in  1925  and  thereafter  it  would  be  only  one-half 
the  highest  rate  on  other  forms  of  property.  Everett, 
Wash.,  and  Pueblo,  Col.,  within  recent  years  adopted  by 
popular  vote  more  sweeping  measures  of  the  same  char- 
acter, but  the  Everett  law  has  never  gone  into  effect,  and 
the  Pueblo  statute  was  repealed  two  years  after  it  had  been 
passed.  In  many  cities  of  the  United  States,  buildings  are 
undervalued  relatively  to  land  by  the  informal  and  illegal 
action  of  assessors.  The  most  pronounced  and  best  known 
instance  of  this  kind  is  Houston,  Texas,  where  in  19 14 
land  was  assessed  at  seventy  per  cent,  of  its  value  and 
buildings  at  only  twenty-five  per  cent.  In  191 5,  however, 
the  practice  was  forbidden  by  the  courts  as  contrary  to  the 
Texas  constitution.  At  more  than  one  recent  session  of 
the  New  York  legislature,  bills  have  been  introduced  pro- 
viding for  the  gradual  reduction  of  the  tax  on  buildings 
in  New  York  City  to  a  basis  of  fifty  per  cent,  of  their 
value.  While  none  of  them  has  been  passed,  the  senti- 
ment in  favour  of  some  such  measure  is  probably  increas- 
ing. A  similar  movement  of  opinion  is  apparent  in  many 
other  sections  of  the  country. 

On  the  whole,  the  special  land  taxes  of  Canada  and 
Australasia  are  not  remarkably  high.  They  seem  to  be  as 
low  or  lower  than  the  average  rates  imposed  on  land,  as 

iCf.  Fallon,  op.  cit,  pp.  443-452. 


I20  DISTRIBUTIVE   JUSTICE 

well  as  on  other  forms  of  general  property,  in  the  United 
States.  In  the  provinces,  the  special  land  taxes  provide 
only  a  small  portion  of  the  total  revenues ;  in  the  cities  and 
towns,  there  are,  as  a  rule,  other  sources  of  revenue  as 
well  as  land,  and  the  expenses  of  municipal  government 
are  probably  not  as  high  as  in  this  country.  Hence  the 
land  taxes  of  Canada  have  not  reached  an  abnormally  high 
level,  and  are  probably  lower  than  most  persons  who  have 
heard  of  them  would  be  inclined  to  expect.  The  chief 
exceptions  to  the  foregoing  statements  are  to  be  found  in 
the  "  wild  lands  tax  "  of  British  Columbia,  and  in  the  land 
taxes  of  some  of  the  towns  (not  the  cities)  of  Alberta. 
A  rate  of  four  per  cent,  on  unimproved  and  slightly  im- 
proved rural  land  is  extraordinary  in  fiscal  annals,  and  is 
scarcely  warranted  by  any  received  principle  of  taxation, 
although  it  may  possibly  be  justified  by  peculiar  social  and 
administrative  conditions  in  the  province  of  British  Co- 
lumbia. Some  of  the  smaller  towns  of  Alberta  which 
adopted  the  land  tax  during  the  recent  period  of  depression 
have  been  compelled  to  impose  even  higher  rates,  the  maxi- 
mum being  reached  by  Castor  in  19 12,  with  a  rate  of  83^ 
per  cent.  As  a  natural  consequence,  a  large  proportion  of 
the  land  in  this  town  was  surrendered  by  its  owners  to  the 
municipality.  While  this  amazing  tax  rate  is  probably 
temporary,  and  is  likely  to  be  lowered  after  the  return  of 
the  average  conditions  of  prosperity,  it  inflicts  unfair  hard- 
ship upon  those  owners  whose  circumstances  are  such  that 
they  must  give  up  their  land,  instead  of  awaiting  the  hoped 
for  decline  in  the  rate  of  taxation. 

The  Morality  of  the  Plan 

The  losses  of  various  kinds  that  would  result  from  the 
transfer  of  other  taxes  to  land  may  be  thus  summarised. 
Land  would  depreciate  in  value  by  an  amount  equal  to  the 
capitalised  tax.  For  example;  if  the  rate  of  interest  were 
five  per  cent.,  an  additional  tax  of  one  per  cent,  would 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        121 

reduce  land  worth  one  hundred  dollars  an  acre  to  eighty 
dollars.  This  decline  might,  indeed,  be  partly,  wholly,  or 
more  than  offset  by  a  simultaneous  rise  due  to  economic, 
forces.  In  any  case,  however,  the  land  would  be  worth 
twenty  dollars  less  than  it  would  have  been  worth  had  the 
tax  not  been  imposed.  For  some  owners  this  would  mean 
a  positive  loss;  fof  others  it  would  signify  mere  failure  to 
gain.  The  latter  would  happen  in  the  case  of  all  those 
owners  who  at  any  time  after  the  imposition  of  the  tax 
sold  their  land  at  as  high  a  price  as  they  had  paid  for  it. 
Not  all  of  the  owners  whose  land  was  forced  by  the  tax 
to  a  figure  below  their  purchase  price  would  suffer  positive 
loss;  for  the  land  might  subsequently  rise  in  value  suffi- 
ciently to  wipe  out  the  unfavourable  difference.  In  this 
respect  a  special  tax  on  the  present  value  of  land  has  a 
different  effect  from  a  tax  that  appropriates  all  the  future 
value  increases.  Only  those  owners  who  actually  sold  their 
land  below  their  purchase  price  could  charge  the  former 
tax  with  inflicting  upon  them  positive  losses.  In  the  case 
of  the  land  exemplified  above,  the  owner  who  sold  at  ninety 
dollars  per  acre  could  properly  attribute  to  the  tax  a  loss  of 
ten  dollars;  the  owner  who  sold  at  eighty  dollars  would 
have  a  grievance  amounting  to  twenty  dollars ;  and  a  loss 
would  be  suffered  by  any  owner  who  sold  for  less  than 
eighty  dollars.  In  the  second  place,  all  owners  of  vacant 
land  who  sold  at  a  price  insufficient  to  provide  for  accumu- 
lated interest  on  the  purchase  price,  could  justly  hold  the 
tax  responsible,  so  long  as  the  deficiency  did  not  exceed 
the  value-depreciation  caused  by  the  tax.  Thirdly,  all  per- 
sons whose  land  had  an  unusually  high  value  relatively  to 
the  value  of  their  exempted  property,  would  suffer  losses 
as  taxpayers.  They  would  lose  more  through  the  heavier 
land  taxes  than  they  would  gain  through  the  lighter  taxes, 
or  the  absence  of  taxes,  on  their  other  property. 

To  compensate  all  owners  who  underwent  these  three 
kinds  of  losses  would  be  practically  impossible.     The  num- 


122  DISTRIBUTIVE   JUSTICE 

ber  of  persons  would  be  too  large,  the  difficulty  of  proving 
many  of  the  claims  would  be  too  expensive,  and  the  com- 
pensation process  would  be  too  long  drawn  out,  since  it 
would  have  to  continue  until  the  death  of  all  persons  who 
had  owned  land  when  the  last  instalment  of  the  increased 
land  taxes  went  into  effect.  Therefore,  the  losses  in  ques- 
tion must  be  counterbalanced  by  other  and  indirect  methods. 
These  will  be  found  mainly  in  the  following  considerations : 
the  amount  of  the  new  taxes;  the  gradual  method  of  im- 
posing them ;  and  their  socially  beneficial  results. 

Amount  of  Taxes  Practically  Tratisferable 

According  to  Professor  King's  computations,  the  total 
rent  of  land  in  the  United  States  in  19 lo  was  $2,673,- 
900,000,  while  the  total  expenditures  of  national,  state, 
county  and  city  governments  were  $2,591,800,000.^  In 
his  opinion  (p.  162)  "the  rent  would  have  been  barely 
sufficient  to  pay  off  the  various  governmental  budgets  as 
at  present  constituted,  and  with  the  growing  concentration 
of  activities  in  the  hands  of  the  government,  it  appears  that 
rent  will  soon  be  a  quantity  far  too  small  to  meet  the 
required  changes.  With  increasing  pressure  on  our  natural 
resources,  however,  it  is  probable  that  the  percentage  of 
the  total  income  paid  for  rent  will  gradually  increase  and, 
since  this  is  true,  the  lag  behind  the  growing  governmental 
expenses  will  be  considerably  less  than  would  otherwise  be 
the  case." 

A  change  in  our  fiscal  system  providing  for  the  imme- 
diate derivation  of  all  revenues  from  land  taxes  would, 
therefore,  involve  the  confiscation  of  all  rent,  and  the  de- 
struction of  all  private  land  values.  Land  would  be  worth 
nothing  to  the  owners  when  its  entire  annual  return  was 
taken  by  the  State  in  the  guise  of  taxes.  Even  if  the 
process  of  imposing  the  new  taxes  on  land  were  extended 

i"The  Wealth  and  Income  of  the  People  of  the  United  States," 
pp.  158,  143- 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        1 23 

over  a  long  term  of  years  the  same  result  would  be  reached 
in  the  end;  for  whatever  increase  had  taken  place  in  the 
economic  value  of  land  during  the  process  would  in  all 
probability  have  been  neutralised  by  the  increase  in  govern- 
mental expenditures.  It  is  evident,  therefore,  that  the 
proposal  to  put  all  taxes  on  land  must  be  rejected  on 
grounds  of  both  morals  and  expediency. 

Let  us  suppose  that  all  national  revenues  continued,  as 
now,  to  be  raised  from  other  sources  than  land,  and  that 
all  state,  county,  and  city  revenues  remained  as  they  are, 
except  those  derived  from  the  general  property  tax.  This 
would  mean  that  all  the  following  taxes  would  be  un- 
changed: all  federal  taxes,  the  taxes  on  licenses  of  all 
kinds,  all  taxes  on  business,  incomes,  and  inheritances,  and 
all  special  property  taxes.  If,  then,  the  whole  of  the  gen- 
eral property  tax  were  concentrated  on  land;  that  is,  if  all 
the  taxes  on  improvements  and  on  all  forms  of  personal 
property  were  legally  shifted  to  land, —  the  entire  revenue 
to  be  raised  from  land  would  in  191 2  have  amounted  to 
$1,349,841,038.^  This  is  slightly  more  than  one-half  of 
Professor  King's  estimate  of  the  total  rent  for  1910,  which 
was  $2,673,900,000.  But  this  figure  equals  four  per  cent, 
of  the  land  values  of  the  country;  hence  the  concentration 
of  the  general  property  tax  on  land  would  mean  a  tax  rate 
of  two  per  cent,  on  the  full  value  of  the  land. 

How  much  would  this  change  increase  the  present  rate 
of  land  taxes,  and  decrease  existing  land  values?  While 
no  accurate  and  definite  answer  can  be  given  to  either  of 
these  questions,  certain  approximations  can  be  attempted 
which  should  be  of  considerable  service. 

In  1912  the  average  tax  rate  on  the  assessed  valuation  of 
all  goods  subject  to  the  general  property  tax  was  .0194,  or 
$19.40  per  thousand  dollars.^     The  assessed  valuation  of 

1"  Abstract  of  Bulletins  on  Wealth,  Debt,  and  Taxation,"  p.  16; 
U.  S.  Census,  1913. 
2  Idem,  p.  15. 


124  DISTRIBUTIVE   JUSTICE 

taxed  real  property  and  improvements  (land,  buildings, 
and  other  improvements)  was  nearly  fifty-two  billion  dol- 
lars, while  the  true  value  of  the  same  property  was  nearly 
ninety-eight  and  one-half  billions.^  Consequently,  the 
actual  tax  rate  of  .0194  on  the  assessed  valuation  was 
exactly  one  per  cent,  on  the  true  value  of  real  estate.  On 
the  assumption  that  both  land  and  improvements  were 
undervalued  to  the  same  extent,  the  land  tax  was  one  per 
cent,  of  the  full  value  of  the  land.  If  now  we  take  Thomas 
G.  Shearman's  estimate,  that  land  values  form  sixty  per 
cent,  of  the  total  value  of  real  estate,  we  find  that  the  taxes 
derived  from  land  constituted  only  forty-four  per  cent,  of 
the  total  revenues  raised  by  the  general  property  tax.  To 
concentrate  the  whole  of  the  general  property  tax  on  land, 
by  transferring  thereto  the  taxes  on  improvements  and  on 
personal  property,  would,  accordingly,  cause  the  land  tax 
to  be  somewhat  more  than  doubled.  It  would  be  slightly 
above  two  per  cent,  on  the  full  value  of  the  land.  This  is 
the  same  estimate  that  we  obtained  above  by  a  different 
process ;  that  is,  by  comparing  Professor  King's  estimate  of 
land  value  and  rent  with  the  total  revenues  derived  from 
the  general  property  tax. 

However,  it  is  not  improbable  that  sixty  per  cent,  is  too 
low  an  estimate  of  the  ratio  of  land  values  to  entire  real 
estate  values.  In  1900,  farm  land  and  improvements,  exclu- 
sive of  buildings,  formed  78.6  per  cent,  of  the  value  of  real 
estate,  i.e., land,  improvements,  and  buildings.  In  i9io,the 
per  cent,  was  a  little  less  than  82.  Now  it  is  quite  unlikely 
that  the  value  of  non-building  improvements  on  farms 
amounted  to  the  difference  between  sixty  per  cent,  and  sev- 
enty-eight per  cent,  in  1900,  or  between  sixty  per  cent,  and 
eighty-two  per  cent,  in  19 10.  Hence  the  value  of  farm  land 
is  something  more  than  sixty  per  cent,  of  farm  real  estate. 
On  the  other  hand,  the  value  of  factory  land  in  1900 

1  Idem,  p.  16 ;  and  Bulletin  of  the  Census  on  "  Estimated  Valuation 
of  National  Wealth,"  p.  15. 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        12$ 

formed  only  41.5  per  cent,  of  the  total  value  of  factory 
land  and  buildings,  while  the  value  of  city  and  town  lots" 
in  five  rural  states  varied  from  34  to  62  per  cent,  of  this 
species  of  real  estate.^  In  Greater  New  York  land  consti- 
tutes 61  per  cent,  of  real  estate  values.^  Owing  to  the  lack 
of  data,  the  average  ratio  for  all  kinds  of  real  estate  for 
the  whole  country  is  impossible  of  determination.  If  the 
estimate  of  seventy  per  cent,  be  adopted,  which  is  probably 
the  upper  limit  of  the  average  proportion  between  land 
values  and  real  estate  values  throughout  the  country,  the 
portion  of  the  general  property  tax  now  paid  by  land 
amounts  to  about  fifty-two  per  cent.  Consequently  the 
imposition  of  the  whole  general  property  tax  on  land  would 
not  quite  double  the  present  rate  on  land.  To  the  first  of 
the  two  questions  raised  above  the  answer  can  be  given 
with  a  fair  amount  of  confidence  that  the  transfer  of  im- 
provement and  personal  property  taxes  to  land  would  cause 
land  taxes  to  be  about  twice  what  they  are  at  present. 

To  the  second  question,  concerning  the  extent  to  which 
land  values  would  fall  in  consequence  of  the  heavier  taxes, 
the  answer  must  be  somewhat  less  definite.  The  added 
land  taxes  would  be  about  one-half  the  present  general 
property  taxes,  or  $675,000,000.  This  is  about  one  per 
cent,  the  total  land  values  of  the  country.  One  per  cent,  of 
land  values  capitalised  at  five  per  cent,  represents  a  de- 
preciation of  twenty  per  cent,  in  the  value  of  land;  capi- 
talised at  four  per  cent.,  it  represents  a  depreciation  of 
twenty-five  per  cent.  For  example ;  if  land  worth  one  hun- 
dred dollars  an  acre  returns  to  its  owner  a  net  income  of 
five  dollars  annually,  the  appropriation  of  one  dollar  by  a 
new  tax  will  leave  a  net  revenue  of  only  four  dollars; 
capitalised  at  the  current  rate  of  five  per  cent.,  this  repre- 

1 "  Special  Report  of  the  Twelfth  Census  on  Wealth,  Debt,  and 
Taxation,"  pp.  12,  13. 

2  Haig,  "  Probable  Effects  of  Exemption  of  Improvements  .  .  .  ", 
p.  23. 


126  DISTRIBUTIVE   JUSTICE 

sents  only  eighty  dollars  of  land  value,  or  a  depreciation 
of  twenty  per  cent.  If  the  land  has  the  same  value  of  one 
hundred  dollars,  and  still  yields  only  four  dollars  revenue, 
a  deduction  of  one  dollar  in  new  taxes  will  leave  only  three 
dollars  net;  capitalised  at  the  current  rate  of  four  per  cent., 
this  represents  only  seventy-five  dollars  of  land  value,  or  a 
depreciation  of  twenty-five  per  cent.  Using  the  other 
method  of  calculation,  which  estimated  the  present  tax  rate 
on  the  full  value  of  land  at  one  per  cent.,  we  get  exactly 
the  same  results ;  namely,  the  new  tax  is  one  per  cent.,  which 
is  equivalent  to  a  depreciation  of  twenty  per  cent,  or  of 
twenty-five  per  cent.,  according  as  we  assume  an  interest 
rate  of  five  per  cent,  or  of  four  per  cent.  Suppose,  how- 
ever, that  the  assessors  do  not  undervalue  land  to  the  ex- 
tent that  we  have  been  assuming;  suppose  that  the  present 
rate  of  .0194  on  assessed  valuation  is  equivalent  to,  not 
merely  one  per  cent.,  but  one  and  one-half  per  cent,  of  the 
full  value  of  land.  In  that  hypothesis  the  additional  tax 
would  likewise  be  one  and  one-half  per  cent.,  which  capi- 
talised at  five  per  cent,  would  represent  a  depreciation  of 
thirty  per  cent.,  and  at  four  per  cent,  a  depreciation  of 
thirty-seven  and  one-half  per  cent.  Combining  in  one  gen- 
eralisation the  various  suppositions  made  in  this  paragraph, 
we  estimate  the  depreciation  of  land  values  resulting  from 
the  proposed  tax  transfer  as  somewhere  between  twenty 
and  forty  per  cent. 

We  have  considered  two  hypothetical  transfers  of  taxes 
to  land.  The  first  we  found  to  be  out  of  the  question 
because  it  would  appropriate  the  whole  of  the  rent  and 
destroy  all  private  land  values.  The  second  would  appar- 
ently amount  to  two  per  cent,  of  the  value  of  land,  and 
cause  land  values  to  depreciate  from  twenty  to  forty  per 
cent.  It  is  unnecessary  to  consider  the  probable  effects  of 
any  plan  that  would  involve  heavier  land  taxes  than 
the  second;  that  is,  the  scheme  of  imposing  all  the  general 
property  tax  on  land ;  for  it  represents  the  extreme  feasible 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        1 2/ 

and  fair  limit  of  the  movement  within,  at  any  rate,  the  next 
fifteen  or  twenty  years. 

Even  this  degree  of  tax  transference  would  be  unjust  to 
the  landowners  if  it  were  brought  about  at  once.  No  social 
or  other  considerations  exist  that  would  justify  a  deprecia- 
tion in  land  values  of  from  twenty  to  forty  per  cent.  If, 
however,  the  process  were  extended  over  a  period  of,  say, 
twenty  years,  the  decline  would  be  only  one  or  two  per 
cent,  annually,  which  is  considerably  less  than  the  rate  at 
which  farm  lands  and  the  land  in  large  cities  have  risen  in 
value  during  recent  years.  Under  such  an  arrangement  the 
great  majority  of  owners  would  probably  find  that  the  de- 
preciation caused  by  the  heavier  land  taxes,  had  been  more 
than  offset  by  the  upward  tendency  resulting  from  the  in- 
creased demand  for  land. 

Nevertheless,  there  would  still  be  positive  losses  of  the 
three  kinds  described  a  few  pages  back ;  namely,  to  owners 
who  sold  land  below  the  price  that  they  had  paid  for  it; 
to  owners  who  sold  vacant  land  at  a  price  insufficient  to 
cover  accumulated  interest  on  the  investment;  and  to 
owners  whose  aggregate  tax  burdens  were  increased. 
Some  degree  of  each  of  these  sorts  of  losses  would  be  due 
specifically  to  the  new  land  taxes.  As  noted  above,  public 
compensation  in  all  such  cases  would  be  impracticable. 
Consequently  the  justification  of  a  law  that  inflicts  such 
losses  must  be  found,  if  it  exists,  in  social  considerations. 

The  Social  Benefits  of  the  Plan 

These  may  be  summed  up  under  three  heads :  making 
land  easier  to  acquire ;  cheapening  the  products  and  rent  of 
land;  and  reducing  the  burdens  of  taxation  borne  by  the 
poorer  and  middle  classes.  An  increase  in  the  tax  on  land 
would  reduce  its  value  and  price,  or  at  least  cause  the  price 
to  be  lower  than  it  would  have  been  in  the  absence  of  the 
tax.  This  does  not  mean  that  land  would  be  more  profit- 
able to  the  purchaser,  since  he  is  enabled  to  buy  it  at  a 


128  DISTRIBUTIVE   JUSTICE 

lower  price  only  because  it  yields  him  less  net  revenue,  or 
because  it  is  less  likely  to  increase  in  value.  The  value  of 
land  is  always  determined  by  its  revenue-producing  power, 
and  by  its  probabilities  of  price-appreciation.  Conse- 
quently, what  the  purchasers  would  gain  by  the  lower  price 
resulting  from  the  new  tax,  they  would  lose  when  they 
came  to  pay  the  tax  itself,  and  when  they  found  the  chances 
of  value  increases  diminished.  If  a  piece  of  land  which 
brings  a  return  of  five  dollars  a  year  costs  one  hundred 
dollars  before  the  new  tax  of  one  per  cent,  is  imposed,  and 
can  be  bought  for  eighty  dollars  afterward,  the  net  interest 
on  the  purchase  price  has  not  changed.  It  is  still  five  per 
cent.  Hence  the  only  advantage  to  the  prospective  pur- 
chaser of  land  in  getting  it  cheaper  consists  in  the  fact  that 
he  can  obtain  it  with  a  smaller  outlay  of  capital.  For 
persons  in  moderate  circumstances  this  is  a  very  important 
consideration. 

In  the  second  place,  higher  taxes  would  cause  many 
existing  owners  either  to  improve  their  land,  in  order  to 
have  the  means  of  meeting  the  added  fiscal  charges,  or  to 
sell  it  to  persons  who  would  be  willing  to  make  improve- 
ments. And  the  desire  to  erect  buildings  and  other  forms 
of  improvements  would  be  reinforced  by  the  reduction  or 
abolition  of  taxes  on  those  kinds  of  personal  property 
which  consist  of  building  materials.  An  increase  in  the 
rapidity  of  improvements  on  land  would  mean  an  increase 
in  the  rate  at  which  land  was  brought  into  use,  and  there- 
fore an  unusual  increase  in  the  volume  of  products.  This 
virtual  increase  in  the  supply  of  land,  and  actual  increase  in 
the  supply  of  products,  would  cause  a  fall  in  three  kinds 
of  prices :  the  price  of  products,  the  rent  of  land,  and  the 
price  of  land.  The  last  named  reduction  would  be  distinct 
from  the  reduction  of  land  value  caused  in  the  first  instance 
by  the  imposition  of  the  tax. 

In  the  third  place,  the  reduction,  and  finally  the  abolition, 
of  taxes  on  improvements  and  personal  property  would  be 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        1 29 

especially  beneficial  to  the  poorer  and  middle  classes  be- 
cause they  now  pay  a  disproportionate  share  of  these 
charges.  Lower  taxes  on  dwellings  would  mean  lower 
rents  for  all  persons  who  did  not  own  their  homes,  and 
lower  taxes  for  all  owners  whose  residence  values  were 
unusually  large  relatively  to  their  land  values.  And  the 
tendency  to  lower  rents  on  dwellings  would  be  reinforced 
by  the  lower  cost  of  building  materials  resulting,  as  noted 
above,  from  the  increased  supply  and  the  lower  tax  on  this 
form  of  personal  property.  Lower  taxes  on  that  species 
of  personal  property  which  consists  of  consumers'  goods, 
such  as  household  furniture  and  wearing  apparel,  would 
lessen  the  present  inequity  of  taxation  because  this  class  of 
goods  is  reached  to  a  much  greater  extent  in  the  case  of 
the  poor  than  in  the  case  of  the  rich.  It  is  not  easy  to 
conceal  or  to  undervalue  a  relatively  small  number  of 
simple  and  standard  articles;  but  diamonds,  costly  furni- 
ture, and  luxurious  wardrobes  can  be  either  hidden,  or 
certified  to  the  assessor  at  a  low  valuation.  As  for  those 
forms  of  personal  property  which  are  of  the  nature  of 
capital  and  other  profit  producing  goods,  such  as  machinery 
and  tools  of  all  kinds,  productive  animals,  money,  mort- 
gages, securities,  the  stocks  of  goods  held  by  manufacturers 
and  merchants,  and  likewise  buildings  which  are  used  for 
productive  purposes, —  the  taxes  on  all  these  kinds  of  prop- 
erty are  for  the  most  part  shifted  to  the  consumer.  The 
latter  ultimately  pays  the  tax  in  the  form  of  higher  prices 
for  food,  clothing,  shelter,  and  the  other  necessaries  and 
comforts  of  life.^  Now  a  tax  on  consumption  is  noto- 
riously unfair  to  the  poorer  and  middle  classes  because  it 
affects  a  greater  portion  of  their  total  expenditures,  and 
takes  a  larger  per  cent,  of  their  income  than  in  the  case  of 
the  rich.     Hence  the  removal  of  the  taxes  specified  in  this 

1  Cf.  Seligman,  "The  Shifting  and  Incidence  of  Taxation,"  pp.  187, 
24s,  272,  and  all  of  part  II ;  N.  Y.,  1899 ;  Taussig,  "  Principles  of 
Economics,"  II,  518-549,  and  chs.  67-69. 


130  DISTRIBUTIVE   JUSTICE 

paragraph  would  be  at  once  the  abolition  of  a  fiscal  in- 
justice, and  a  considerable  assistance  to  the  less  fortunate 
classes. 

All  those  landowners  who  occupied  rented  dwellings 
would  benefit  by  the  reduction  in  house  rent,  and  all  land- 
owners without  exception  would  reap  some  advantage  from 
the  reduction  or  abolition  of  the  taxes  on  consumers'  goods 
and  on  the  various  forms  of  producers'  goods.  It  is  not 
improbable  that  a  considerable  proportion  of  them  would 
gain  as  much  in  these  respects  as  they  would  lose  in  the 
capacity  of  landowners. 

Would  the  social  benefits  summarily  described  in  the 
foregoing  paragraphs  be  sufficient  to  justify  the  increased 
land  taxes  in  the  face  of  the  losses  that  would  be  under- 
gone by  some  landowners  in  the  three  ways  already  speci- 
fied? In  view  of  our  ignorance  concerning  the  probable 
amount  of  benefits  on  the  one  hand  and  losses  on  the  other, 
it  is  impossible  to  give  a  dogmatic  answer.  However, 
when  we  reflect  on  the  manifold  social  evils  that  are  threat- 
ened by  a  rapid  and  continuous  increase  in  land  values,  and 
the  resulting  decrease  in  the  proportion  of  the  population 
that  can  hope  to  participate  in  the  ownership  of  land,  we 
are  forced  to  conclude  that  some  means  of  checking  both 
tendencies  is  urgently  necessary  for  the  sake  of  social  jus- 
tice and  social  peace.  The  project  that  we  have  been  con- 
sidering; namely,  the  transfer  of  taxes  on  improvements 
and  on  personal  property  to  land  by  a  process  extending 
over  twenty  years,  seems  to  involve  a  sufficiently  large 
amount  of  advantage  and  a  sufficiently  small  amount  of 
disadvantage  to  justify  systematic  and  careful  experiment. 

A  Supertax  on  Large  Holdings 

Every  estate  containing  more  than  a  maximum  number 
of  acres,  say,  ten  thousand,  whether  composed  of  a  single 
tract  or  of  several  tracts,  could  be  compelled  to  pay  a  spe- 
cial tax  in  addition  to  the  ordinary  tax  levied  on  land  of 


METHODS   OF   REFORMING   OUR   LAND   SYSTEM        I3I 

the  same  value.  The  rate  of  this  supertax  should  increase 
with  the  size  of  the  estate  above  the  fixed  maximum. 
Through  this  device  large  holdings  could  be  broken  up,  and 
divided  among  many  owners  and  occupiers.  For  several 
years  it  has  been  successfully  applied  for  this  purpose  in 
New  Zealand  and  Australia.^  Inasmuch  as  this  tax 
exemplifies  the  principle  of  progression,  it  is  in  accord  with 
the  principles  of  justice;  for  relative  ability  to  pay  is  closely 
connected  with  relative  sacrifice.  Other  things  being  equal, 
the  less  the  sacrifice  involved,  the  greater  is  the  ability  of 
the  individual  to  pay  the  tax.  Thus,  the  man  with  an  in- 
come of  ten  thousand  dollars  a  year  makes  a  smaller  sacri- 
fice in  giving  up  two  per  cent,  of  it  than  the  man  whose 
income  is  only  one  thousand  dollars ;  for  the  latter  case  the 
twenty  dollars  surrendered  represent  a  privation  of  the 
necessaries  or  the  elementary  comforts  of  life,  while  the 
two  hundred  dollars  taken  from  the  rich  man  would  have 
been  expended  for  luxuries  or  converted  into  capital. 
While  the  incomes  of  both  are  reduced  in  the  same  propor- 
tion, their  satisfactions  are  not  diminished  to  the  same  de- 
gree. The  wants  that  are  deprived  of  satisfaction  are 
much  less  important  in  the  case  of  the  richer  than  in  that 
of  the  poorer  man.  Hence  the  only  way  to  bring  about 
anything  like  equality  of  sacrifice  between  them  is  to  in- 
crease the  proportion  of  income  taken  from  the  former. 
This  means  that  the  rate  of  taxation  would  be  progressive.^ 
It  is  in  order  to  object  that  the  principle  of  progression 
should  not  be  applied  to  the  taxation  of  great  landed  estates, 
since  a  considerable  part  of  them  is  unproductive,  and  con- 
sequently does  not  directly  affect  sacrifice.  But  the  same 
objection  can  be  urged  against  any  taxation  of  unoccupied 
land.     The  obvious  reply  is  that  the  equal  taxation  of  un- 

1  Cf .  Fallon,  op.  cit.,  'pp.  442,  sq. 

2Cf.  Vermeersch,  "  Quaestiones  de  Justitia,"  pp.  94-126;  Seligman, 
"Progressive  Taxation  in  Theory  and  Practice,"  pp.  210,  211;  Mill, 
"  Principles  of  Political  Economy,"  book  V,  ch.  ii,  sec.  3. 


132  DISTRIBUTIVE   JUSTICE 

productive  with  productive  land  is  justified  by  social  rea- 
sons, chiefly,  the  unwisdom  of  permitting  land  to  be  held 
out  of  use.  The  same  social  reasons  apply  to  the  question 
of  levying  an  exceptionally  high  tax  on  large  estates,  even 
though  they  may  at  present  produce  no  revenue. 

While  the  tax  is  sound  in  principle,  it  is  probably  not 
much  needed  in  America  in  connection  with  agricultural  or 
urban  land.  Its  main  sphere  of  usefulness  would  seem 
to  be  certain  great  holdings  of  mineral,  timber,  and  water 
power  lands.  "  There  are  many  great  combinations  in 
other  industries  whose  formation  is  complete.  In  the  lum- 
ber industry,  on  the  other  hand,  the  Bureau  now  finds  in 
the  making  a  combination  caused,  fundamentally,  by  a  long 
standing  public  policy.  The  concentration  already  exist- 
ing is  sufficiently  impressive.  Still  more  impressive  are 
the  possibilities  for  the  future.  In  the  last  forty  years 
concentration  has  so  proceeded  that  195  holders,  many 
interrelated,  now  have  practically  one-half  of  the  privately 
owned  timber  in  the  investigation  area  (which  contains 
eighty  per  cent,  of  the  whole) .  This  formidable  process  of 
concentration,  in  timber  and  in  land,  clearly  involves  grave 
future  possibilities  of  impregnable  monopolistic  conditions, 
whose  far  reaching  consequences  to  society  it  is  now  difficult 
to  anticipate  fully  or  to  overestimate."  ^  In  January, 
1916,  the  Secretary  of  Agriculture  called  the  attention  of 
Congress  to  the  fact  that  a  small  number  of  corporations 
closely  associated  in  a  policy  of  community  of  interest 
were  threatening  to  secure  and  exercise  a  monopoly  over 
the  developed  water  power  of  the  country.  Ninety  per 
cent,  of  the  anthracite  coal  lands  of  Pennsylvania  are 
owned  or  controlled  by  some  nine  railroads  acting  as  a 
unit  in  all  important  matters.  For  situations  of  this  kind 
a  supertax  on  large  estates  would  seem  to  hold  the  promise 
of  a  large  measure  of  relief. 

1 "  Summary  of  Report  of  the  Commissioner  of  Corporations  on 
the  Lumber  Industry  in  the  United  States,"  p.  8. 


METHODS   OF  REFORMING   OUR   LAND   SYSTEM        1 33 

To  sum  up  the  main  conclusions  of  this  very  long  chap- 
ter :  Exceptionally  valuable  lands,  as  those  containing  tim- 
ber, minerals,  oil,  gas,  phosphate,  and  water  power,  which 
are  still  under  public  ownership  should  remain  there. 
Through  a  judicious  system  of  loans,  deserving  and  effi- 
cient persons  should  be  assisted  to  get  possession  of  some 
land.  Municipalities  should  lease  rather  than  sell  their 
lands,  and  should  strive  to  increase  their  holdings.  To 
take  all  the  future  increases  in  the  value  of  land  would  be 
morally  lawful,  provided  that  compensation  were  given  to 
owners  who  thereby  suffered  positive  losses  of  interest  or 
principal.  To  take  a  small  part  of  the  increase,  and  to 
transfer  very  gradually  the  taxes  on  improvements  and  on 
personal  property  to  land,  would  probably  be  just,  owing 
to  the  beneficial  effects  upon  public  welfare.  A  supertax 
on  large  holdings  of  exceptionally  valuable  and  scarce  land 
would  likewise  be  beneficial  and  legitimate.^ 

REFERENCES  ON  SECTION  I 

Ashley:    The  Origin  of  Property  in  Land.    London;  1892, 

Laveleye:    Primitive  Property.    London;  1878. 

Whittaker:    The    Taxation,    Tenure,    and    Ownership    of    Land. 

London;  1914. 
Preuss  :    The  Fundamental  Fallacy  of  Socialism.    St.  Louis ;  1908. 
George:     Progress  and  Poverty;  and  A  Perplexed  Philosopher. 
Marsh:    Land  Value  Taxation  in  American  Cities.    N.  Y. ;  191 1. 
FiLLEBROWN  :    A  Single  Tax  Handbook  for  1913.    Boston ;  1912. 

Young:    The  Single  Tax  Movement  in  the  United  States.    Prince- 
ton; 1916. 

Shearman  :    Natural  Taxation.    N.  Y. ;  1898. 

Mathews:    Taxation  and  the  Distribution  of  Wealth.    N.  Y. ;  1914. 

1  Probably  the  most  concrete  and  satisfactory  discussion  of  the 
increment  tax  and  the  project  to  transfer  improvement  taxes  to  land, 
is  that  presented  in  the  "  Final  Report  of  the  Committee  on  Taxation 
of  the  City  of  New  York  " ;  1916.  It  contains  brief,  though  complete, 
statements  of  all  phases  of  the  subject,  together  with  concise  argu- 
ments on  both  sides,  majority  and  minority  recommendations,  a  great 
variety  of  dissenting  individual  opinions,  and  considerable  testimony 
by  experts,  authorities,  and  other  interested  persons. 


134  DISTRIBUTIVE   JUSTICE 

Cathrein  :    Das  Privatgrundeigenthum  und  seine  Gegner.    Freiburg ; 

1909. 
Fallon:    Les  Plus- Values  et  1'  Impot.    Paris;  1914. 
Nearing:    Anthracite.    Philadelphia;  1916. 
Haig:     Final  Report  of  the  Committee  on  Taxation  of  the  City  of 

New  York;  1916. 
The  exemption  of  Improvements  from  Taxation  in  Canada  and 

U.  S.;  1915- 
Some  Probable  Effects  of  Exemption  in  City  of  New  York;  1915. 
Kelleher:     Private  Ownership.    Dublin;  1911. 

Proceedings  of  the  1913  Meeting  of  the  American  Economic  Associa- 
tion. 

U.  S.  Commissioner  of  Corporations:    Reports  on  the  Lumber,  Pe- 
troleum, Steel,  and  Water  Power  of  the  United  States. 

Seligman  :    Essays  in  Taxation ;  Shifting  and  Incidence  of  Taxation ; 
and  Progressive  Taxation  in  Theory  and  Practice. 
Also  the  works  of  Taussig,  Devas,  Carver,  Pesch,  King,  Vermeersch, 

Willoughby,  and  the  Commission  on  Industrial  Relations,  all  of  which 

are  cited  at  the  end  of  the  introductory  chapter. 


SECTION  II 

THE  MORAUTY  OF  PRIVATE  CAPITAL  AND 
INTEREST 


CHAPTER  IX 

THE  NATURE  AND  THE  RATE  OF  INTEREST 

Interest  denotes  that  part  of  the  product  of  industry 
which  goes  to  the  capitaHst.  As  the  ownership  of  land 
commands  rent,  so  the  ownership  of  capital  commands 
interest ;  as  rent  is  a  price  paid  for  the  use  of  land,  so  in- 
terest is  a  price  paid  for  the  use  of  capital. 

However,  the  term  capital  is  less  definite  and  unambig- 
uous, both  in  popular  and  in  economic  usage,  than  the  word 
land.  The  farmer,  the  merchant,  and  the  manufacturer 
often  speak  of  their  land,  buildings,  and  chattels  as  their 
capital,  and  reckon  the  returns  from  all  these  sources  as 
equivalent  to  a  certain  per  cent,  of  interest  or  profit.  This 
is  not  technically  correct;  when  we  use  the  terms  capital 
and  interest  we  should  exclude  the  notions  of  land  and  rent. 

Meaning  of  Capital  and  Capitalist 

Capital  is  ordinarily  defined  as,  wealth  employed  directly 
for  the  production  of  new  wealth.  According  as  it  is  con- 
sidered in  the  abstract  or  the  concrete,  it  is  capital-value 
or  capital-instruments.  For  example,  the  owner  of  a 
wagon  factory  may  describe  his  capital  as  having  a  value 
of  100,000  dollars,  or  as  consisting  of  certain  buildings, 
machines,  tools,  office  furniture,  etc.  In  the  former  case 
he  thinks  of  his  capital  as  so  much  abstract  value  which, 
through  a  sale,  he  could  take  out  of  the  factory,  and  put 
into  other  concrete  capital  forms,  such  as  a  railroad  or  a 
jobbing  house.  In  the  latter  case  he  has  in  mind  the  par- 
ticular instruments  in  which  his  capital  is  at  present  em- 
bodied. The  capital-value  concept  is  the  more  convenient, 
and  is  usually  intended  when  the  word  capital  is  used  with- 
out qualification.     It  is  also  the  basis  upon  which  interest 

137 


138  DISTRIBUTIVE   JUSTICE 

is  reckoned;  for  the  capitalist  does  not  measure  his  share 
of  the  product  as  so  many  dollars  of  rent  on  his  capital- 
instruments,  but  as  so  many  per  cent,  on  his  capital-value. 
Capitalists  are  of  two  principal  kinds :  those  who  employ 
their  own  money  in  their  own  enterprises;  and  those  who 
lend  their  money  to  others  for  use  in  industry.  The  for- 
mer may  be  called  active  capitalists,  the  latter  loan-capi- 
talists. Perhaps  a  majority  of  active  capitalists  use  some 
borrowed  money  in  their  business.  To  the  lenders  of  this 
borrowed  money  or  capital  they  turn  over  a  part  of  the 
product  in  the  form  of  interest.  When,  therefore,  interest 
is  defined  as  the  share  of  the  product  that  goes  to  the  capi- 
tahst,  it  is  the  owner  of  capital-value  rather  than  of  capital- 
instruments  that  is  meant.  For  the  man  who  has  loaned 
50,000  dollars  at  five  per  cent,  to  the  wagon  manufacturer 
is  not,  except  hypothetically,  the  owner  of  the  buildings 
which  have  been  erected  with  that  money.  These  are 
owned  (subject  possibly  to  a  mortgage)  by  the  borrower, 
the  active  capitalist.  But  the  abstract  value  which  has 
gone  into  them  continues  to  be  the  property  of  the  lender. 
As  owner  thereof,  he,  instead  of  the  active  capitalist,  re- 
ceives the  interest  that  is  assigned  to  this  portion  of  the 
total  capital.  Hence  interest  is  the  share  of  the  product 
that  is  taken  by  the  owner  of  capital,  whether  he  employs  it 
himself  or  lends  it  to  some  one  else.  While  the  funda- 
mental reason  of  interest  is  the  fact  that  certain  concrete 
instruments  are  necessary  to  the  making  of  the  product, 
interest  is  always  reckoned  on  capital-value,  and  goes  to 
the  owner  of  the  capital-value.  It  goes  to  the  man  whose 
money  has  been  put  into  the  instruments,  whether  or  not 
he  is  the  owner  of  the  instruments. 

Meaning  of  Interest 

Interest  is  the  share  of  the  capitalist  as  capitalist.     The 
man  who  employs  his  own  capital  in  his  own  business  re- 


THE   NATURE  AND   THE  RATE  OF   INTEREST         1 39 

ceives  therefrom  in  addition  to  interest  other  returns.  Let 
us  suppose  that  some  one  has  invested  100,000  dollars  of 
borrowed  money  and  100,000  dollars  of  his  own  money 
in  a  wholesale  grocery  business.  At  the  end  of  the  year, 
after  defraying  the  cost  of  labour,  materials,  rent,  repairs, 
and  replacement,  his  gross  returns  are  15,000  dollars.  Out 
of  this  sum  he  must  pay  five  thousand  dollars  as  interest  on 
the  money  that  he  has  borrowed.  This  leaves  him  a  total 
amount  of  ten  thousand  dollars,  as  his  share  of  the  product 
of  the  industry.  Since  he  could  command  a  salary  of 
three  thousand  dollars  if  he  worked  for  some  one  else,  he 
regards  his  labour  of  directing  his  own  business  as  worth 
at  least  this  sum.  Deducting  it  from  ten  thousand  dollars, 
he  has  left  seven  thousand  dollars,  which  must  in  some 
sense  be  accredited  as  payment  for  the  use  of  his  own 
capital.  However,  it  is  not  all  pure  interest;  for  he  runs 
the  risk  of  losing  his  capital,  and  also  of  failing  to  get  the 
normal  rate  of  interest  on  it  during  future  unprosperous 
years.  Hence  he  will  require  a  part  of  the  seven  thousand 
dollars  as  insurance  against  these  two  contingencies.  Two 
per  cent,  of  his  capital,  or  two  thousand  dollars,  is  not  an 
excessive  allowance.  H  the  business  did  not  provide  him 
with  this  amount  of  insurance  he  would  probably  regard  it 
as  unsafe,  and  would  sell  it  and  invest  his  money  else- 
where. Subtracting  two  thousand  dollars  from  seven 
thousand,  we  have  five  thousand  left  as  pure  interest  on 
the  director's  own  capital.  This  is  equivalent  to  five  per 
cent.,  which  is  the  rate  that  he  is  paying  on  the  capital  that 
he  has  borrowed.  If  he  could  not  get  this  rate  on  his  own 
money  he  would  probably  prefer  to  become  a  lender  him- 
self, a  loan  capitalist  instead  of  an  active  capitalist.  This 
part  of  his  total  share,  then,  and  only  this  part,  is  pure 
interest.  The  other  two  sums  that  he  receives,  the  three 
thousand  dollars  and  the  two  thousand  dollars,  are  respec- 
tively wages  for  his  labour  and  insurance  against  his  risks. 


140  DISTRIBUTIVE   JUSTICE 

Sometimes  they  are  classified  together  under  the  general 
name  of  profits. 

Let  us  suppose,  however,  that  the  gross  returns  are  not 
15,000  dollars,  but  17,000.  How  is  the  additional  sum  to 
be  denominated?  In  strict  economic  language  it  would 
probably  be  called  net  profits,  as  distinguished  from  normal 
or  necessary  profits,  which  comprise  wages  of  direction  and 
insurance  against  loss.  Sometimes  it  is  called  interest.  In 
that  case  the  owner  of  the  store  would  receive  seven  in- 
stead of  five  per  cent,  on  his  own  capital.  Whether  the 
extra  two  per  cent.  (2,000  dollars)  be  called  net  profits  or 
surplus  interest,  is  mainly  a  matter  of  terminology.  The 
important  thing  is  to  indicate  clearly  that  these  terms 
designate  the  surplus  which  goes  to  the  active  capitalist  in 
addition  to  necessary  profits  and  necessary  interest. 

At  the  risk  of  wearisome  repetition,  one  more  example 
will  be  given  to  illustrate  the  distinction  between  interest 
and  the  other  returns  that  are  received  in  connection  with 
capital.  The  annual  income  from  a  railway  bond  is  in- 
terest on  lenders  capital,  and  consequently  pure  interest. 
Ordinarily  the  bondholder  is  adequately  protected  against 
the  loss  of  his  capital  by  a  mortgage  on  the  railroad.  On 
the  other  hand,  the  holder  of  a  share  of  railway  stock  is  a 
part  owner  of  the  railroad,  and  consequently  incurs  the 
risk  of  losing  his  property.  Hence  the  dividend  that  he 
receives  on  his  stock  comprises  interest  on  capital  plus 
insurance  against  loss.  It  is  usually  one  or  two  per  cent, 
higher  than  the  rate  on  the  bonds.  Since  the  officers  and 
directors  are  the  only  shareholders  who  perform  any  labour 
in  the  management  of  the  railroad,  only  they  receive  wages 
of  management.  Consequently  the  gross  profits  are 
divided  into  interest  and  dividends  at  fixed  rates,  and  fixed 
salaries.  When  a  surplus  exists  above  these  requirements 
it  is  not,  as  a  rule,  distributed  among  the  stockholders  an- 
nually. In  railroads,  therefore,  and  many  other  corpora- 
tions,  interest   is   easily  distinguished   from   those   other 


THE    NATURE   AND   THE  RATE   OF   INTEREST  I4I 

returns  with  which  it  is  frequently  confused  in  partnerships 
and  enterprises  carried  on  by  individuals. 

The  Rate  of  Interest 

Is  there  a  single  rate  of  interest  throughout  industry? 
At  first  sight  this  question  would  seem  to  demand  a  nega- 
tive answer.  United  States  bonds  pay  about  two  per  cent. ; 
banks  about  three  per  cent. ;  municipal  bonds  about  four 
per  cent. ;  railway  bonds  about  five  per  cent. ;  the  stocks  of 
stable  industrial  corporations  about  six  per  cent,  net;  real 
estate  mortgages  from  five  to  seven  per  cent. ;  promissory 
notes  somewhat  higher  rates ;  and  pawnbrokers'  loans  from 
twelve  per  cent,  upwards.  Moreover,  the  same  kind  of 
loans  brings  different  rates  in  different  places.  For 
example,  money  lent  on  the  security  of  farm  mortgages 
yields  only  about  five  per  cent,  in  the  states  of  the  East, 
but  seven  or  eight  per  cent,  on  the  Pacific  coast. 

These  and  similar  variations  are  differences  not  so  much 
of  interest  as  of  security,  cost  of  negotiation,  and  mental 
attitude.  The  farm  mortgage  pays  a  higher  rate  than  the 
government  bond  partly  because  it  is  less  secure,  partly 
because  it  involves  greater  trouble  of  investment,  and  partly 
because  it  does  not  run  for  so  long  a  time.  For  the  same 
reasons  a  higher  rate  of  interest  is  charged  on  a  promissory 
note  than  on  a  bank  deposit  certificate.  Again,  the  lower 
rates  on  government  bonds  and  bank  deposits  are  due  in 
some  degree  to  the  peculiar  attitude  of  that  class  of  in- 
vestors whose  savings  are  small  in  amount,  who  are  not 
well  aware  of  the  range  of  investment  opportunities,  and 
to  whom  security  and  convenience  are  exceptionally  im- 
portant considerations.  If  such  persons  did  not  exist  the 
rates  on  government  bonds  and  savings  deposits  would  be 
higher  than  they  actually  are.  The  higher  rates  in  a  new 
country  on,  say,  farm  mortgages  are  likewise  due  in  part 
to  psychical  peculiarities.  Where  men  are  more  specula- 
tive and  more  eager  to  borrow  money  for  industrial  pur- 


142  DISTRIBUTIVE   JUSTICE 

poses,  the  demand  for  loans  is  greater  relatively  to  the 
supply  than  in  older  and  more  conservative  communities. 
Therefore,  the  price  of  the  loans,  the  rate  of  interest,  is 
higher. 

In  one  sense  it  would  seem  that  the  lowest  of  the  rates 
cited  above,  namely,  that  on  United  States  bonds,  repre- 
sents pure  interest,  and  that  all  the  other  rates  are  interest 
plus  something  else.  Nevertheless,  the  sums  invested  in 
these  bonds  form  but  a  very  small  part  of  the  whole  amount 
'  of  money  and  capital  drawing  interest,  and  they  come  from 
persons  who  do  not  display  the  average  degree  either  of 
business  ability  or  of  willingness  to  take  risks.  Hence  it 
is  more  convenient  and  more  correct  to  regard  as  the 
standard  rate  of  interest  in  any  community  that  which  is 
obtained  on  first  class  industrial  security,  such  as  the  bonds 
of  railroads  and  other  stable  corporations,  and  mortgages 
on  real  estate.  Loans  to  these  enterprises  are  subject  to 
what  may  properly  be  called  the  average  or  prevailing  in- 
dustrial risks,  are  negotiated  in  average  psychical  condi- 
tions, and  embrace  by  far  the  greater  part  of  all  money 
drawing  interest ;  consequently  the  rate  that  they  command 
may  be  looked  upon  as  in  a  very  real  and  practical  sense 
normal.  While  this  conception  of  the  normal  rate  is  in  a 
measure  conventional,  it  accords  with  popular  usage.  It  is 
what  most  men  have  in  mind  when  they  speak  of  the  pre- 
vailing rate  of  interest. 

The  prevailing  or  standard  rate  in  any  community  can 
usually  be  stated  with  a  sufficient  approach  to  precision  to  be 
satisfactory  for  all  practical  purposes.  In  all  the  Eastern 
States  it  is  now  about  five  per  cent. ;  in  the  Middle  West  it  is 
somewhere  between  five  and  six  per  cent. ;  on  the  Pacific 
coast  it  is  between  six  and  seven  per  cent.  The  supreme 
court  of  Minnesota  decided  in  1896  that,  in  view  of  the 
actual  rates  of  interest  then  obtaining,  five  per  cent,  on  the 
reproduction  cost  of  railroads  was  a  fairly  liberal  return, 
and  could  be  adopted  by  the  state  authorities  in  fixing 


THE   NATURE   AND   THE  RATE  OF   INTEREST  143 

charges  for  carrying  freight  and  passengers.^  A  few  years 
later  the  Michigan  tax  commission  allowed  the  railroads 
four  per  cent,  on  the  reproduction  cost  of  their  property, 
on  the  ground  that  investments  which  yielded  that  rate  in 
addition  to  the  usual  tax  of  one  per  cent,  (or  five  per  cent, 
before  the  deduction  of  the  tax)  stood  at  par  on  the  stock 
market.^  In  other  words,  the  prevailing  rate  was  five  per 
cent.  At  the  beginning  of  the  year  1907,  the  railroad  com- 
mission of  Wisconsin  fixed  six  per  cent,  as  the  return  to 
which  the  stockholders  of  railroads  were  entitled,  because 
this  was  about  the  return  which  investors  generally  were 
able  to  get  on  that  kind  of  security.  In  the  view  of  the 
Commission,  the  current  rate  of  interest  on  railroad  bonds, 
and  similar  investments,  was  about  five  per  cent.^  The 
significance  of  these  decisions  by  the  public  authorities  of 
three  states  is  found  not  so  much  in  the  particular  rates 
which  they  sanctioned  as  in  the  fact  that  they  were  able  to 
determine  a  standard  or  prevailing  rate.  Therefore  a 
standard  rate  exists.  At  the  same  time  it  is  interesting  to 
note  that  in  all  three  states  the  rate  of  industrial  interest 
was  declared  to  be  about  the  same,  that  is,  five  per  cent. 
Perhaps  it  is  safe  to  say  that,  throughout  the  greater  part 
of  the  industrial  field  of  America,  five  or  six  per  cent,  is  the 
prevailing  rate  of  interest. 

What  causes  the  rate  to  be  five  per  cent.,  or  six  per  cent., 
or  any  other  per  cent.  ?  Briefly  stated,  it  is  the  interplay 
of  supply  and  demand.  Since  interest  is  a  price  paid  for 
the  use  of  a  thing,  i.e.,  capital,  its  rate  or  level  is  determined 
by  the  same  general  forces  that  govern  the  price  of  wheat, 
or  shoes,  or  hats,  or  any  other  commodity  that  is  bought 
and  sold  in  the  market.  The  rate  is  five  or  six  per  cent, 
because  at  that  rate  the  amount  of  money  offered  by  lenders 

1"  Final  Report  of  the  Industrial  Commission,"  pp.  410,  411. 
2  "  Report  of  the  Industrial  Commission,"  vol.  IX,  p.  380. 
* "  Publication  No.  32  of  the  Railroad  Commission  of  Wisconsin," 
pp.  16s,  166. 


144  DISTRIBUTIVE   JUSTICE 

equals  the  amount  demanded  by  borrowers.  Should  the 
amount  offered  at  that  rate  increase  without  a  correspond- 
ing increase  in  the  amount  demanded,  the  rate  would  fall, 
just  as  it  would  rise  under  opposite  conditions. 

Supply  and  demand,  however,  are  merely  the  immediate 
forces.  They  are  themselves  the  outcome  or  resultant  of 
factors  more  remote.  On  the  side  of  supply,  the  principal 
remote  forces  which  regulate  the  rate  of  interest  are :  the 
industrial  resources  of  the  community,  and  the  relative 
strength  of  its  habits  of  saving  and  spending.  On  the  side 
of  demand,  the  chief  ultimate  factors  are :  the  productivity 
of  capital-instruments,  the  comparative  intensity  of  the 
social  desires  of  investing  and  lending,  and  the  supplies  of 
land,  business  ability  and  labour.  Each  of  these  factors 
exercises  upon  the  rate  of  interest  an  influence  of  its  own, 
and  each  of  them  may  be  assisted  or  counteracted  by  one 
or  more  of  the  others.  Precisely  what  rate  will  result 
from  any  given  condition  of  the  factors,  cannot  be  stated 
beforehand,  for  the  factors  cannot  be  measured  in  such  a 
way  as  to  provide  a  basis  for  this  kind  of  forecast.  All 
that  can  be  said  is  that,  when  changes  occur  on  the  side  of 
either  demand  or  supply,  there  will  be  a  corresponding 
change  in  the  rate  of  interest,  provided  that  no  neutralising 
change  takes  place  on  the  other  side. 


CHAPTER  X 

THE  ALLEGED  RIGHT  OF  LABOUR  TO  THE  ENTIRE  PRODUCT 
OF  INDUSTRY 

In  a  preceding  chapter  we  saw  that  Marxian  Socialism 
is  logically  debarred  from  passing  moral  judgment  upon 
any  social  institution  or  practice.^  If  social  institutions 
are  produced  necessarily  by  socio-economic  forces  they  are 
neither  morally  good  nor  morally  bad.  They  are  quite  as 
unmoral  as  rain  and  snow,  verdure  and  decay,  tadpoles  and 
elephants.  Consistent  Socialists  cannot,  therefore,  censure 
on  purely  ethical  grounds  the  system  of  private  capital  and 
interest. 

This  logical  requirement  of  the  theory  of  economic  de- 
terminism is  exemplified  in  much  of  the  rigidly  scientific 
discussions  of  Socialists.  Marx  maintained  that  the  value 
of  commodities  is  all  determined  and  created  by  labour, 
and  that  interest  is  the  surplus  which  the  labourer  pro- 
duces above  the  cost  of  his  keep;  nevertheless  Marx  did 
not  formally  assert  that  the  labourer  has  a  moral  right  to 
the  whole  product,  nor  that  interest  is  theft.  He  set  forth 
his  theories  of  value  and  surplus  value  as  positive  explana- 
tions of  economic  facts,  not  as  an  ethical  evaluation  of 
human  actions.  His  object  was  to  show  the  causes  and 
nature  of  value,  wages,  and  interest,  not  to  estimate  the 
moral  claims  of  the  agents  of  production,  or  the  morality 
of  the  distributive  process.  In  his  formal  discussion  of 
the  theory  of  value  and  of  surplus  value,  Marx  said  noth- 
ing that  implied  a  belief  in  genuine  moral  responsibility,  or 

1  Cf .  Engels,  "  Socialism :  Utopian  and  Scientific,"  pp.  45,  46 ;  and 
Hillquit-Ryan,  "  Socialism :  Promise  or  Menace,"  103,  104,  143-145. 

145 


146  DISTRIBUTIVE   JUSTICE 

that  contradicted  the  principles  of  philosophical  material- 
ism and  economic  determinism.  It  is,  therefore,  quite 
erroneous  to  infer  that,  since  the  Marxian  theory  attrib- 
utes all  value  and  products  to  the  action  of  labour,  Marx- 
ian Socialists  must  condemn  the  interest-taker  as  a  robber. 
Neither  Marx  nor  any  other  Socialist  authority,  how- 
ever, has  always  held  consistently  to  this  purely  positive 
method  of  economic  exposition.  When  they  declare  that 
the  labourer  is  "  exploited,"  that  surplus  value  is  "  filched  " 
from  him,  that  the  capitalist  is  a  "  parasite,"  etc.,  they  are 
expressing  and  conveying  distinct  moral  judgments.  In 
their  more  popular  writings  Socialist  authors  do  not  seri- 
ously attempt  to  observe  the  logical  requirements  of  their 
necessitarian  philosophy.  They  assume  the  same  ethical 
postulates,  and  give  expression  to  the  same  ethical  intui- 
tions as  the  man  who  believes  in  the  human  soul  and  free 
will.^  And  the  great  majority  of  their  followers  likewise 
regard  the  question  of  distribution  as  a  moral  question,  as 
a  question  of  justice.  In  their  view  the  labourer  not  only 
creates  all  value,  but  has  a  just  claim  to  the  whole  product. 

The  Labour  Theory  of  Value 

This  doctrine  is  sometimes  formally  based  upon  the 
Marxian  theory  of  value,  and  is  sometimes  defended  inde- 
pendently of  that  theory.  In  the  former  case  its  ground- 
work is  about  as  follows:  By  eliminating  the  factors  of 
utility  and  scarcity,  Marx  found  that  the  only  element 
common  to  all  commodities  is  labour,  and  then  concluded 
that  labour  is  the  only  possible  explanation,  creator,  and 
determinant  of  value.^  Since  capital,  that  is,  concrete 
capital,  is  a  commodity,  its  value  is  likewise  determined 
and  created  by  labour.  Since  it  cannot  create  value,  for 
only  labour  has  that  power,  it  can  contribute  to  the  product 
of  the  productive  process  in  which  it  is  engaged  only  as 

1  Cf.  Hillqiiit-Ryan,  op.  cit,  pp.  75,  76. 

2  "  Capital,"  pp.  1-9. 


ALLEGED   RIGHT   OF   LABOUR   TO   ENTIRE   PRODUCT        1 47 

much  value  as  it  originally  received.  Since  it  is  only  a 
reservoir  of  value,  it  cannot  transfer  more  value  than  it 
holds  and  possesses.  In  the  words  of  Marx,  "  the  means 
of  production  transfer  value  to  the  new  product,  so  far 
only  as  during  the  labour-process  they  lose  value  in  the 
shape  of  the  old  use- value.  The  maximum  loss  of  value 
that  they  can  suffer  in  the  process  is  plainly  limited  by  the 
amount  of  the  original  value  with  which  they  came  into 
the  process,  or,  in  other  words,  by  the  labour  time  neces- 
sary for  their  production.  Therefore,  the  means  of  pro- 
duction can  ever  add  more  value  to  the  product  than  they 
themselves  possess  independently  of  the  process  in  which 
they  assist.  However  useful  a  given  kind  of  raw  material, 
or  a  machine,  or  other  means  of  production  may  be,  though 
it  may  cost  150  pounds,  or  say  500  days'  labour,  yet  it 
cannot,  under  any  circumstances,  add  to  the  value  of  the 
product  more  than  150  pounds."  ^ 

To  view  the  matter  from  another  angle :  capital  con- 
tributes to  the  product  only  sufficient  value  to  pay  for  its 
own  reproduction.  When,  as  is  the  normal  usage,  the 
undertaker  has  deducted  from  the  product  sufficient  value 
or  money  to  replace  the  deteriorated  or  worn  out  machine, 
or  other  concrete  capital,  all  the  remaining  value  in  the 
product  is  due  specifically  to  labour. 

When,  therefore,  the  capitalist  goes  further,  and  appro- 
priates from  the  product  interest  and  profits,  he  takes  a 
part  of  the  value  that  labour  has  created.  He  seizes  the 
surplus  value  which  labour  has  produced  in  excess  of  the 
wages  that  it  receives.  In  ethical  terms,  he  robs  the 
labourers  of  a  part  of  their  product. 

It  is  not  necessary  to  introduce  any  extended  refutation 
of  this  arbitrary,  unreal,  and  fantastic  argument.  *'  The 
theory  that  labour  is  the  sole  source  of  value  has  few  de- 
fenders to-day.  In  the  face  of  the  overwhelming  criti- 
cism which  has  been  directed  against  it,  even  good  Marx- 

iQp.  cit.,  p.  117;  Humboldt  Edition. 


148  DISTRIBUTIVE   JUSTICE 

ists  are  forced  to  abandon  it,  or  to  explain  it  away."  ^  It 
may,  however,  be  useful  to  recount  very  briefly  the  facts 
which  disprove  the  theory.  Labour  creates  some  things 
which  have  no  value,  as  wooden  shoes  in  a  community  that 
does  not  desire  wooden  shoes;  some  things  have  value, 
exchange  value,  although  no  labour  has  been  expended 
upon  them,  as  land  and  minerals;  the  value  of  things  is 
sometimes  greater,  sometimes  less,  proportionately,  than 
the  labour  embodied  in  them;  for  example,  paintings  by 
tlie  old  masters,  and  last  year's  styles  of  millinery;  and, 
finally,  the  true  determinants  of  value  are  utility  and 
scarcity.  If  it  be  objected  that  Marx  was  aware  of  these 
two  factors,  the  reply  is  that  he  either  restricted  them  to 
the  function  of  conditions  rather  than  efficient  causes  of 
value,  or  attributed  to  them  an  influence  that  is  inconsist- 
ent with  his  main  theory  that  labour  is  the  sole  determinant 
of  value.  Indeed,  the  contradictions  into  which  Marx 
was  led  by  the  theory  are  its  sufficient  refutation.^ 

With  the  destruction  of  the  labour  theory  of  value,  the 
Marxian  contention  that  capital  contributes  only  its  own 
original  value  to  the  product  is  likewise  overthrown.  The 
same  conclusion  is  reached  more  directly  by  recalling  the 
obvious  facts  of  experience  that,  since  the  joint  action  of 
both  capital  and  labour  is  required  to  bring  into  being 
every  atom  of  the  product,  each  is  in  its  own  order  the 
cause  of  the  whole  product,  and  the  proportion  of  the 
whole  that  is  specifically  due  to  the  casual  influence  of 
either  is  as  incapable  of  determination  as  the  procreative 
contribution  of  either  parent  to  their  common  offspring. 
The  productive  process  carried  on  by  labour  and  capital  is 
virtually  an  organic  process,  in  which  the  precise  amount 
contributed  by  either  factor  is  unknown  and  unknow- 
able. 

In  so  far,  therefore,  as  the  alleged  right  of  labour  to  the 

1  Skelton,  "  Socialism :  A  Critical  Analysis,"  pp.  121,  122. 
2Cf.  Skelton,  loc.  cit. 


ALLEGED   RIGHT    OF   LABOUR   TO    ENTIRE    PRODUCT        I49 

whole  product  is  based  upon  the  Marxian  theory  of  value, 
it  has  not  a  shadow  of  validity. 

The  Right  of  Productivity 

But  the  claim  is  not  necessarily  dependent  upon  this 
foundation.  Those  Socialists  who  have  abandoned  the 
labour  theory  of  value  can  argue  that  the  labourer  (in- 
cluding the  active  director  of  industry)  is  the  only  human 
producer,  that  the  capitalist  as  such  produces  nothing,  and 
consequently  has  no  moral  claim  to  any  part  of  the  prod- 
uct. Whatever  theory  of  value  we  may  adopt,  or  whether 
we  adopt  any,  we  cannot  annul  the  fact  that  interest  does 
not  represent  labour  expended  upon  the  product  by  the 
capitalist. 

Nevertheless,  this  fact  does  not  compel  the  conclusion 
that  the  share  of  the  product  now  taken  by  the  capitalist 
belongs  of  right  to  the  labourer.  Productivity  does  not 
of  itself  create  a  right  to  the  product.  It  is  not  an  in- 
trinsic title.  That  is  to  say,  a  right  to  the  product  is  not 
inherent  in  the  relation  between  product  and  producer. 
It  is  determined  by  certain  extrinsic  relations.  When 
Brown  makes  a  pair  of  shoes  out  of  materials  that  he  has 
stolen,  he  has  not  a  right  to  the  whole  product;  when 
Jones  turns  out  a  similar  product  from  materials  that  he 
has  bought,  he  becomes  the  exclusive  owner  of  the  shoes. 
The  intrinsic  relation  of  productivity  is  the  same  in  both 
cases.  It  is  the  difference  of  extrinsic  relation,  namely, 
the  relation  between  the  producer  and  the  material,  that 
begets  the  difference  between  the  moral  claims  of  the  two 
producers  upon  the  product. 

The  right  of  the  producer  is  conditioned  by  certain 
other  and  more  fundamental  relations.  Why  has  Jones 
a  right  to  the  shoes  that  he  has  made  out  of  materials  that 
he  has  bought  ?  Not  because  he  needs  them ;  he  is  not 
alone  in  this  condition.  The  ultimate  reason  and  basis  of 
his  ownership  is  to  be  sought  in  the  practical  requirements 


150  DISTRIBUTIVE   JUSTICE 

of  an  equitable  social  distribution.  Unless  men  receive 
an  adequate  return  for  their  labour,  they  will  not  be  able 
to  satisfy  their  wants  in  a  regular  and  sufficient  manner. 
If  they  are  forced  to  labour  for  others  without  compen- 
sation, they  are  deprived  of  the  opportunity  to  develop 
their  personality.  They  are  treated  as  mere  instruments 
to  the  welfare  of  beings  who  are  not  their  superiors,  but 
their  moral  and  juridical  equals.  Their  intrinsic  worth 
and  sacredness  of  personality  is  outraged,  their  essential 
equality  with  their  fellows  is  disregarded,  and  their  inde- 
structible rights  are  violated.  On  the  other  hand,  when  a 
producer,  such  as  Jones,  gets  possession  of  his  product,  he 
subordinates  no  human  being  to  himself,  deprives  no  man 
of  the  opportunity  to  perform  remunerative  labour,  nor 
appropriates  an  unreasonable  share  of  the  common  bounty 
of  the  earth.  He  has  a  right  to  his  product  because  this  is 
one  of  the  reasonable  methods  of  distribution. 

In  fact,  it  is  the  exigencies  of  reasonable  distribution 
that  constitute  the  fundamental  justification  of  every  title 
of  ownership.  The  title  of  purchase  by  which  a  man 
claims  the  hat  that  he  wears;  the  title  of  inheritance  by 
which  a  son  claims  the  house  that  once  belonged  to  his 
father;  the  title  of  contract  through  which  a  labourer  gets 
wages,  a  merchant  prices,  and  a  landlord  rent, —  are  all 
valid  simply  because  they  are  reasonable  devices  for 
enabling  men  to  obtain  the  goods  of  the  earth  for  the  sat- 
isfaction of  their  wants.  All  titles  of  property,  produc- 
tivity included,  are  conventional  institutions  which  reason 
and  experience  have  shown  to  be  conducive  to  human 
welfare.  None  of  them  possesses  intrinsic  or  metaphysi- 
cal validity.* 

Therefore,  the  Socialist  cannot  establish  the  right  of 

1  The  exaggerated  claims  made  on  behalf  of  social  productivity  in 
the  matter  of  land  values  have  been  examined  in  a  previous  chapter. 
Similar  exaggerations  with  regard  to  capital  will  be  considered  in 
chapter  xii. 


ALLEGED   RIGHT   OF   LABOUR   TO    ENTIRE   PRODUCT        I5I 

labour  to  the  full  product  of  industry  until  he  proves  that 
this  so-called  right  could  be  reduced  to  practice  consistently 
with  individual  and  social  welfare.  In  other  words,  he 
must  show  that  to  give  the  entire  product  to  the  labourer 
would  be  a  reasonable  method  of  distribution.  Now  the 
arrangement  by  which  the  Socialist  proposes  to  award  the 
whole  product  of  labour  is  the  collective  ownership  and 
operation  of  the  means  of  production,  and  the  social  dis- 
tribution of  the  product.  If  this  system  would  not  enable 
the  labourer  and  the  members  of  society  generally  to  sat- 
isfy their  wants  to  better  advantage  than  is  possible  under 
the  present  system,  the  contention  that  the  labourer  has  a 
right  to  the  entire  product  of  industry  falls  to  the  ground. 
The  question  will  be  considered  in  the  following  chapter. 


CHAPTER  XI 

THE  SOCIALIST   SCHEME   OF   INDUSTRY 

"  Never  has  our  party  told  the  workingman  about  a 
*  State  of  the  future,'  never  in  any  way  than  as  a  mere 
Utopia.  If  anybody  says:  'I  picture  to  myself  society 
after  our  programme  has  been  realised,  after  wage  labour 
has  been  abolished,  and  the  exploitation  of  men  has  ceased, 
in  such  and  such  a  manner, — '  well  and  good;  ideas  are 
free,  and  everybody  may  conceive  the  Socialist  State  as 
he  pleases.  Whoever  believes  in  it  may  do  so;  whoever 
does  not,  need  not.  These  pictures  are  but  dreams,  and 
Social  Democracy  has  never  understood  them  otherwise."  ^ 

Such  is  the  official  attitude  of  Socialism  toward  de- 
scriptions of  its  contemplated  industrial  organisation. 
The  party  has  never  drawn  up  nor  approved  any  of  the 
various  outlines  of  this  sort  which  have  been  defended  by 
individual  Socialists.  It  maintains  that  it  cannot  antici- 
pate even  the  essential  factors  in  the  operation  of  a  social 
and  industrial  system  which  will  differ  so  widely  from  the 
one  that  we  have  to-day,  and  which  will  be  so  profoundly 
determined  by  events  that  are  in  the  nature  of  the  case 
impossible  to  prognosticate. 

Socialist  Inconsistency 

From  the  viewpoint  of  all  but  convinced  Socialists,  this 
position  is  indefensible.  We  are  asked  to  believe  that  the 
collective  ownership  and  operation  of  the  means  of  pro- 
duction would  be  more  just  and  beneficial  than  the  present 

1  Wilhelm  Liebknecht,  cited  in  Hillquit's  "  Socialism  in  Theory  and 
Practice,"  p.  107. 

IS3 


THE   SOCIALIST   SCHEME   OF   INDUSTRY  I53 

plan  of  private  ownership  and  operation.  Yet  the  Social- 
ist party  refuses  to  tell  us  how  the  scheme  would  bring 
about  these  results;  refuses  to  give  us,  even  in  outline,  a 
picture  of  the  machine  at  work.  As  reasonably  might  we 
be  expected  to  turn  the  direction  of  industry  over  to  a 
Rockefeller  or  a  Morgan,  making  an  act  of  faith  in  their 
efficiency  and  fairness.  We  are  in  the  position  of  a  man 
who  should  be  advised  to  demolish  an  unsatisfactory  house, 
without  receiving  any  solid  assurance  that  the  proposed 
new  one  would  be  as  good.  To  our  requests  for  specific 
information  about  the  working  of  the  new  industrial  order 
the  Socialists,  as  a  rule,  answer  in  terms  of  prophesied  re- 
sults. They  leave  us  in  the  dark  concerning  the  causes 
by  which  these  wonderful  results  are  to  be  produced. 

From  the  viewpoint  of  the  confirmed  Socialist,  how- 
ever, this  failure  to  be  specific  is  not  at  all  unreasonable. 
He  can  have  faith  in  the  Socialist  system  without  knowing 
beforehand  how  it  will  work.  He  believes  in  its  efficacy 
because  he  believes  that  it  is  inevitable.  In  the  words  of 
Kautsky,  "  what  is  proved  to  be  inevitable  is  proved  not 
only  to  be  possible,  but  to  be  the  only  possible  outcome."  ^ 
The  Socialist  believes  that  his  scheme  is  inevitable  be- 
cause he  thinks  that  it  is  necessarily  included  in  the  out- 
come of  economic  and  social  evolution. 

Neither  the  premises  nor  the  conclusion  of  this  reason- 
ing is  valid.  The  doctrines  of  economic  determinism,  the 
class  struggle,  the  concentration  of  capital,  the  disappear- 
ance of  the  middle  classes,  the  progressive  pauperisation 
of  the  working  classes,  and  all  the  other  tenets  of  the 
Socialist  philosophy,  have  been  thoroughly  discredited  by 
the  facts  of  psychology,  the  experience  of  the  last  half 
century,  and  the  present  trend  of  industrial  and  social 
forces.^  Even  if  the  Socialist  outcome  were  inevitable, 
it  would  not  necessarily  be  an  improvement  on  the  present 

1 "  Das  Erfurter  Program,"  cited  by  Skelton,  op.  cit.,  p.  178. 

2  Cf .  Skelton,  op.  cit.,  ch,  vii ;  Bernstein,  "  Evolutionary  Socialism," 


154  DISTRIBUTIVE   JUSTICE 

system.  It  might  illustrate  the  principle  of  retrogression. 
Since  we  cannot  make  an  act  of  faith  in  either  the  in- 
evitableness  or  the  efficacy  of  the  Sociahst  industrial 
scheme,  we  are  compelled  to  submit  it  to  the  ordinary 
tests  of  examination  and  criticism.  We  must  try  to  see 
what  would  be  the  essential  structure,  elements,  and  opera- 
tion of  a  system  in  which  the  means  of  production  were 
owned  and  managed  collectively,  and  the  product  socially 
distributed.  In  attempting  to  describe  the  system,  we 
shall  be  guided  by  what  seems  to  be  inherently  necessary 
to  it,  and  by  the  prevalent  conception  of  it  among  present 
day  Socialists.  In  this  connection  we  have  to  observe 
that  some  of  the  criticisms  of  the  Socialist  order  attribute 
to  it  elements  that  are  not  essential,  nor  any  longer  de- 
manded by  the  authoritative  spokesmen  of  the  movement; 
for  example,  complete  confiscation  of  capital,  compulsory 
assignment  of  men  to  the  different  industrial  tasks,  equal- 
ity of  remuneration,  the  use  of  labour  checks  instead  of 
money,  the  socialisation  of  all  capital  down  to  the  smallest 
tool,  and  collective  ownership  of  homes. 

Expropriating  the  Capitalists 

The  first  problem  confronting  a  Socialist  administra- 
tion would  be  the  method  of  getting  possession  of  the  in- 
struments of  production.  In  the  early  years  of  the  Social- 
ist movement,  most  of  its  adherents  seemed  to  favour  a 
policy  of  outright  confiscation.  Professor  Nearing  esti- 
mates the  total  property  income  now  paid  in  the  United 
States  as,  "  well  above  the  six-billion-dollar  mark."  ^ 
Were  the  Socialist  State  to  seize  all  land  and  capital  with- 
out compensation,  it  could  conceivably  transfer  more  than 
six  billion  dollars  annually  from  landowners  and  capital- 
ists to  the  community.     Not  all  of  it,  however,  would  be 

pp.  1-94;   Simkhovitch,  "Marxism  vs.  Socialism,"  passim;  Waljing, 
"  Progressivism  and  After,"  passim;  Hillquit-Ryan,  op.  cit.,  ch.  iv. 
^  "  Income,"  p.  152. 


THE    SOCIALIST    SCHEME   OF   INDUSTRY  1 55 

available  for  diversion  to  the  labourers.  According  to 
the  computations  of  Professor  King,  about  two  billion 
dollars  were  in  1910  saved  and  converted  into  capital.^ 
A  progressive  Socialist  regime  would  want  to  appropriate 
at  least  that  sum  for  the  renewal  and  increase  of  the  in- 
struments of  production.  Consequently,  it  would  have 
only  four  billion  dollars  to  add  to  the  present  total  income 
of  labour.  This  would  be  equivalent  to  $43.50  for  every 
person  in  the  United  States. 

Desirable  as  would  be  such  an  addition  to  the  remunera- 
tion of  labour,  it  could  never  be  realised  through  the 
process  of  confiscation.  The  owners  of  land  and  capital 
would  be  sufficiently  powerful  to  defeat  any  such  simple 
scheme  of  setting  up  the  collectivist  commonwealth.  They 
constitute  probably  a  majority  of  the  adults  of  our  popu- 
lation, and  their  economic  advantages  would  make  them 
much  stronger  relatively  than  their  numbers.^  Ethically 
the  policy  of  confiscation  would  be,  on  the  whole,  sheer 
robbery.  To  be  sure,  not  all  owners  of  land  and  capital 
have  a  valid  claim  to  all  their  possessions,  but  practically 
all  of  them  hold  the  greater  part  of  their  wealth  by  some 
kind  of  just  title.  Much  land  and  capital  that  was  orig- 
inally acquired  by  unjust  means  has  become  morally  legiti- 
matised  by  the  title  of  prescription. 

The  majority  of  present  day  Socialists  seem  to  advo- 
cate at  least  partial  compensation.^  But  this  plan  does 
not  seem  to  offer  any  considerable  advantage  over  com- 
plete confiscation.  As  regards  morality,  it  would  differ 
only  in  the  degree  of  its  injustice ;  as  regards  expediency, 
it  would  be  at  best  of  doubtful  efficacy.  If  the  capitalists 
were  given  only  a  small  fraction  of  the  value  of  their 
holdings  they  would  oppose  the  change  with  quite  as  much 

1 "  The  Wealth  and  Income  of  the  People  of  the  United  States,"  p. 
132. 

2  Cf.  Hillquit-Ryan,  op.  cit,  pp.  107,  136. 

3  Cf.  Hillquit-Ryan,  op.  cit.,  pp.  72-77 )  Skelton,  op.  cit,  p.  183;  Wall- 
ing, "  Socialism  as  It  Is,"  p.  429. 


156  DISTRIBUTIVE   JUSTICE 

determination  as  though  they  were  offered  nothing;  if 
they  were  paid  almost  the  full  value  of  their  possessions 
there  would  be  no  substantial  gain  to  the  community  from 
the  transfer;  if  they  were  compensated  at  a  figure  some- 
where between  these  two  extremes  their  resistance  would 
still  be  more  costly  to  the  State  than  the  extra  amount  re- 
quired to  make  full  compensation. 

Finally,  if  full  compensation  were  offered  it  would  have 
to  take  the  form  of  government  obligations,  securities,  or 
bonds.  If  these  did  not  bear  interest  the  great  majority 
of  capital  owners  would  regard  the  scheme  as  partial  and 
considerable  confiscation,  and  would  fight  it  with  deter- 
mination and  effectiveness.  If  the  State  bound  itself  to 
pay  interest  on  the  bonds  it  would  probably  find  itself  giv- 
ing the  dispossessed  capitalists  as  high  a  rate  of  return  on 
their  capital,  as  large  a  share  of  the  national  product,  as 
they  receive  under  the  present  system.  Consequently,  the 
expropriation  of  the  capitalists  would  bring  no  direct  and 
pecuniary  gain  to  the  labouring  classes.  Indeed,  the  latter 
would  suffer  positive  loss  by  the  change,  owing  to  the  fact 
that  the  State  would  be  required  to  withdraw  from  the 
national  product  a  considerable  amount  for  the  mainte- 
nance, renewal,  and  expansion  of  the  instruments  of  pro- 
duction. At  present  the  capitalist  class  performs  the 
greater  part  of  this  function  through  the  reinvestment  of 
the  incomes  that  it  receives  in  the  form  of  interest  and 
rent.  The  average  Socialist  entirely  ignores  this  capital- 
istic service,  when  he  draws  his  pessimistic  picture  of  the 
vast  share  of  the  national  product  which  now  goes  to 
"  idle  capitalists."  So  far  as  the  larger  capitalist  incomes 
are  concerned;  that  is,  those  in  excess  of  twenty-five  thou- 
sand dollars  annually,  it  is  probable  that  the  greater  part 
is  not  consumed  by  the  receivers,  but  is  converted  into 
socially  necessary  capital  instruments.  Since  this  would 
not  be  permitted  in  a  Socialist  order,  the  capitalists  would 
strive  to  consume  the  whole  of  the  incomes  received  from 


THE  SOCIALIST   SCHEME  OF   INDUSTRY  1 57 

the  public  securities,  and  the  State  would  be  compelled  to 
provide  the  required  new  capital  out  of  the  current  na- 
tional product.  In  a  word,  society  would  have  to  give 
the  capitalists  as  much  as  it  does  at  present,  and  to  with- 
hold from  the  labourers  for  new  capital  an  immense  sum 
which  is  now  furnished  by  the  capitalists. 

It  is  undoubtedly  true  that  the  richest  capitalists  would 
be  unable  to  expend  the  whole  of  their  incomes  upon 
themselves  and  their  families.  If  they  turned  a  consid- 
erable part  of  it  over  to  the  State,  the  surrendered  sum 
would  be  available  as  capital,  thereby  reducing  the  amount 
that  the  State  would  need  to  take  out  of  the  national 
product  for  this  purpose.  Were  all  those  possessing  in- 
comes in  excess  of  fifty  thousand  dollars  per  family  to 
give  up  all  above  that  amount,  the  total  thus  accruing  to 
the  State  would  be  a  little  more  than  one  billion  dollars.^ 
But  this  would  be  only  one-half  the  required  new  capital. 
A  part  of  the  additional  one  billion  is  now  provided  out  of 
wages  and  salaries,  but  the  greater  part  probably  comes 
out  of  rent  and  interest.  Under  Socialism  this  latter  por- 
tion would  have  to  be  deducted  from  that  part  of  the  na- 
tional product  which  at  present  goes  to  the  workers  and 
is  consumed  by  them.  Hence  they  would  undergo  a  loss 
of  several  hundred  million  dollars. 

One  reply  to  this  difficulty  is  that  the  total  product  of 
industry  would  be  much  increased  under  Socialism.  Un- 
doubtedly an  efficient  organisation  of  industry  on  collec- 
tivist  lines  would  be  able  to  effect  economies  by  combining 
manufacturing  plants,  distributive  concerns,  and  transpor- 
tation systems,  and  by  reducing  unemployment  to  a  mini- 
mum ;  but  it  could  not  possibly  make  the  enormous  econo- 
mies that  are  promised  by  the  Socialists.  The  assertion 
that  under  Socialism  men  would  be  able  to  provide  abun- 
dantly for  all  their  wants  on  a  basis  of  a  working  day  of 
four,  or  even  two,  hours  is  seductive  and  interesting,  but 

1  Cf .  King,  op.  cit.,  pp.  224-226. 


158  DISTRIBUTIVE   JUSTICE 

it  has  no  support  in  the  ascertainable  facts  of  industrial 
resources.  Even  if  the  Socialist  organisation  were  operat- 
ing with  a  fair  degree  of  efficiency,  the  gains  that  it  could 
effect  over  the  present  system  would  probably  not  more 
than  offset  the  social  losses  resulting  from  increased  con- 
sumption by  the  compensated  capitalists. 

But  the  proposed  industrial  organisation  would  not 
operate  with  a  fair  degree  of  efficiency.  According  to 
present  Socialist  thought,  industries  that  are  national  in 
scope,  such  as  the  manufacture  of  petroleum,  steel,  and 
tobacco,  would  be  carried  on  under  national  direction, 
while  those  that  supplied  only  a  local  market,  such  as 
laundries,  bakeries,  and  retail  stores,  would  be  managed 
by  the  municipalities.  This  division  of  control  would  be 
undoubtedly  wise  and  necessary.  Moreover,  the  majority 
of  Socialists  no  longer  demand  that  all  tools  and  all  indus- 
tries should  be  brought  under  collective  or  governmental 
direction.  Very  small  concerns  which  employed  no  hired 
labour,  or  at  most  one  or  two  persons,  could  remain  under 
private  ownership  and  operation,  while  even  larger  enter- 
^prises  might  be  carried  on  by  co-operative  associations.-^ 
Nevertheless  the  attempt  to  organise  and  operate  collec- 
tively the  industries  of  the  country,  even  with  these  limita- 
tions, would  encounter  certain  insuperable  obstacles. 
These  will  be  considered  under  the  general  heads  of  in- 
efficient industrial  leadership,  inefficient  labour,  and  inter- 
ference with  individual  liberty. 

Inefficient  Industrial  Leadership 

Under  Socialism  the  boards  of  directors  or  commissions 
which  exercised  supreme  control  in  the  various  industries, 
would  have  to  be  chosen  either  by  the  general  popular 
vote,  by  the  government,  or  by  the  workers  in  each  par- 
ticular industry.     The  first  method  may  be  at  once  ex- 

1  Cf.  Kautsky,  "The  Social  Revolution,"  pp.  166,  167;  Hillquit-Ryan, 
op.  cit.,  p.  72. 


THE   SOCIALIST   SCHEME   OF   INDUSTRY  1 59 

eluded  from  consideration.  Even  now  the  number  of  of- 
ficials chosen  directly  by  the  people  is  far  too  large ;  hence 
the  widespread  agitation  for  the  "  short  ballot."  Public 
opinion  is  coming  to  realise  that  the  voters  should  be  re- 
quired to  select  only  a  few  important  officials,  whose 
qualifications  should  be  general  rather  than  technical,  and 
therefore  easily  recognised  by  the  masses.  These  su- 
preme functionaries  should  have  the  power  of  filling  all 
administrative  offices,  and  all  positions  demanding  expert 
or  technical  ability.  If  the  task  of  choosing  administrative 
experts  cannot  be  safely  left  to  the  mass  of  the  voters  at 
present,  it  certainly  ought  not  to  be  assigned  to  them 
under  Socialism,  when  the  number  and  qualifications  of 
these  functionaries  would  be  indefinitely  increased. 

If  the  boards  of  industrial  directors  were  selected  by 
the  government,  that  is,  by  the  national  and  municipal  au- 
thorities, the  result  would  be  industrial  inefficiency  and  an 
intolerable  bureaucracy.  No  body  of  officials,  whether 
legislative  or  executive,  would  possess  the  varied,  exten- 
sive, and  specific  knowledge  required  to  pick  out  efficient 
administrative  commissions  for  all  the  industries  of  the 
country  or  the  city.  And  no  group  of  political  persons 
could  safely  be  entrusted  with  such  tremendous  power. 
It  would  enable  them  to  dominate  the  industrial  as  well 
as  the  political  life  of  the  nation  or  the  municipality,  to 
establish  a  bureaucracy  that  would  be  impregnable  for  a 
long  period  of  years,  and  to  revive  all  the  conceivable 
evils  of  governmental  absolutism. 

The  third  method  is  apparently  the  one  now  favoured 
by  most  Socialists.  "  The  workers  in  each  industry  may 
periodically  select  the  managing  authority,"  says  Morris 
Hillquit.^  Even  if  the  workers  were  as  able  as  the  stock- 
holders of  a  corporation  to  select  an  efficient  govern- 
ing board,  they  would  be  much  less  likely  to  choose  men 
who  would  insist  on  hard  and  efficient  work  from  all  sub- 

1  Hillquit-Ryan,  op.  cit,  p.  80 ;  cf .  Spargo,  "  Socialism,"  pp.  225-227. 


l6o  DISTRIBUTIVE  JUSTICE 

ordinates.  The  members  of  a  private  corporation  have  a 
strong  pecuniary  interest  in  selecting  directors  who  will 
secure  the  maximum  of  product  at  the  minimum  of  cost, 
while  the  employes  in  a  Socialist  industry  would  want 
managing  authorities  who  were  willing  to  make  working 
conditions  as  easy  as  possible. 

The  dependence  of  the  boards  of  directors  upon  the 
mass  of  the  workers,  and  the  lack  of  adequate  pecuniary 
motives,  would  render  their  management  much  less  effi- 
cient and  progressive  than  that  of  private  enterprises. 
In  the  rules  that  they  would  make  for  the  administration 
of  the  industry  and  the  government  of  the  labour  force, 
in  their  selection  of  subordinate  officers,  such  as  superin- 
tendents, general  managers,  and  foremen,  and  in  all  the 
other  details  of  management,  they  would  have  always  be- 
fore them  the  abiding  fact  that  their  authority  was  derived 
from  and  dependent  upon  the  votes  of  the  majority  of  the 
employes.  Their  supreme  consideration  would  be  to  con- 
duct the  industry  in  such  a  way  as  to  satisfy  the  men  who 
elected  them.  Hence  they  would  strive  to  maintain  an 
administration  which  would  permit  the  mass  of  the  labour 
force  to  work  leisurely,  to  be  provided  with  the  most  ex- 
pensive conditions  of  employment,  and  to  be  immune  from 
discharge  except  in  rare  and  flagrant  cases.  Even  if  the 
members  of  the  directing  boards  were  sufficiently  cour- 
ageous or  sufficiently  conscientious  to  exact  reasonable 
and  efficient  service  from  all  their  subordinates  and  all 
the  workers,  they  would  not  have  the  necessary  pecuniary 
motives.  Their  salaries  would  be  fixed  .by  the  govern- 
ment, and  in  the  nature  of  things  could  not  be  promptly 
adjusted  to  reward  efficient  and  to  punish  inefficient  man- 
agement. So  long  as  their  administration  of  industry 
maintained  a  certain  routine  level  of  mediocrity,  they 
would  have  no  fear  of  being  removed ;  since  they  would  be 
supervised  and  paid  by  public  officials  who  would  have 
neither  the  extraordinary  capacity  nor  the  necessary  in- 


THE   SOCIALIST   SCHEME   OF  INDUSTRY  l6l 

centive  to  recognise  and  reward  promptly  efficient  manage- 
ment, they  would  lack  the  powerful  stimulus  which  is  pro- 
vided by  the  hope  of  gain.  In  the  large  private  corpora- 
tions, the  tenure  of  the  boards  of  directors  depends  not 
upon  the  workers  but  upon  the  stockholders,  whose  main 
interest  is  to  obtain  a  maximum  of  product  at  a  minimum 
of  cost,  and  who  will  employ  and  discharge,  reward  and 
punish,  according  as  this  end  is  attained.  Moreover,  the 
members  of  the  boards,  and  the  executive  officers  gen- 
erally, are  themselves  financially  interested  in  the  business 
and  in  the  maintenance  of  the  policy  demanded  by  the 
other  stockholders. 

All  the  subordinate  officers,  such  as  department  man- 
agers, superintendents,  foremen,  etc.,  would  exemplify  the 
same  absence  of  efficiency.  Knowing  that  they  must 
carry  out  the  prudent  policy  of  the  board  of  directors,  they 
would  be  slow  to  punish  shirking  or  to  discharge  incom- 
petents. Realising  that  the  board  of  directors  lacked  the 
incentive  to  make  promotions  promptly  for  efficient  serv- 
ice, or  to  discharge  promptly  for  inefficient  service,  they 
would  devote  their  main  energies  to  the  task  of  holding 
their  positions  through  a  policy  of  indifferent  and  routine 
administration. 

Invention  and  progress  would  likewise  suffer.  Men 
who  were  capable  of  devising  new  machines,  new  processes, 
new  methods  of  combining  capital  and  labour,  would  be 
slow  to  convert  their  potencies  into  action.  They  would 
be  painfully  aware  that  the  spirit  of  inertia  and  routine 
prevailing  throughout  the  industrial  and  political  organi- 
sation would  prevent  their  efforts  from  receiving  quick 
recognition  and  adequate  rewards.  Inventors  of  mechan- 
ical devices  particularly  would  be  deprived  of  the  stimulus 
which  they  now  find  in  the  hope  of  indefinitely  large  gains. 
Boards  of  directors,  general  managers,  and  other  persons 
exercising  industrial  authority  would  be  very  slow  to  in- 
troduce  new    and    more    efficient   financial    or    technical 


1 62  DISTRIBUTIVE   JUSTICE 

methods  when  they  had  no  certainty  that  they  would  re- 
ceive adequate  reward  in  the  form  of  either  promotion  or 
money  compensation.  They  would  see  no  sufficient  reason 
for  abandoning  the  established  and  pleasant  policy  of 
routine  methods  and  unprogressive  management. 

Inefficient  Labour 

The  same  spirit  of  inefficiency  and  mediocrity  would 
permeate  the  rank  and  file  of  the  workers.  Indeed,  it 
would  operate  even  more  strongly  among  them  than 
among  the  officers  and  superiors;  for  their  intellectual 
limitations  and  the  nature  of  their  tasks  would  make  them 
less  responsive  to  other  than  material  and  pecuniary  mo- 
tives. They  would  desire  to  follow  the  line  of  least  re- 
sistance, to  labour  in  the  most  pleasant  conditions,  to  re- 
duce irksome  toil  to  a  minimum.  Since  the  great  bulk  of 
their  tasks  would  necessarily  be  mechanical  and  monoto- 
nous, they  would  demand  the  shortest  possible  working 
day,  and  the  most  leisurely  rate  of  working  speed.  And 
because  of  their  numerical  strength  they  would  have  the 
power  to  enforce  this  policy  throughout  the  field  of  indus- 
try. They  would  have  the  necessary  and  sufficient  votes. 
In  a  general  way  they  might,  indeed,  realise  that  the  prac- 
tice of  universal  shirking  and  laziness  must  sooner  or 
later  result  in  such  a  diminution  of  the  national  product  as 
to  cause  them  great  hardship,  but  the  workers  in  each  in- 
dustry would  hope  that  those  in  all  the  others  would  be 
more  efficient ;  or  doubt  that  a  better  example  set  by  them- 
selves would  be  imitated  by  the  workers  in  other  indus- 
tries. They  would  not  be  keen  to  give  up  the  certainty 
of  easy  working  conditions  for  the  remote  possibility  of  a 
larger  national  product. 

Attempted  Replies  to  Objections 

All  the  attempts  made  by  Socialists  to  answer  or  ex- 
plain away  the  foregoing  difficulties  may  be  reduced  to 


THE   SOCIALIST   SCHEME   OF  INDUSTRY  1 63 

two:  the  achievements  of  government  enterprises  in  our 
present  system;  and  the  assumed  efficacy  of  altruism  and 
pubHc  honour  in  a  regime  of  Socialism. 

Under  the  first  head  appeal  is  made  to  such  publicly 
owned  and  managed  concerns  as  the  post  office,  railroads, 
telegraphs,  telephones,  street  railways,  water  works,  and 
lighting  plants.  It  is  probably  true  that  all  these  enter- 
prises are  on  the  whole  carried  on  with  better  results  to 
the  public  than  if  they  were  in  private  hands.  It  is  like- 
wise probable  that  these  and  all  other  public  utility  monop- 
olies will  sooner  or  later  be  taken  over  by  the  State  in  all 
advanced  countries.  Even  if  this  should  prove  in  all 
cases  to  be  a  better  arrangement  from  the  viewpoint  of  the 
general  public  welfare  than  private  ownership  and  man- 
agement, the  fact  would  constitute  no  argument  for  a 
Socialist  organisation  of  all  industry.  In  the  first  place, 
the  efficiency  of  labour,  management,  and  technical  organ- 
isation is  generally  lower  in  public  than  in  private  enter- 
prises, and  the  cost  of  operation  higher.  Despite  these 
defects,  government  ownership  of  public  utilities,  such  as 
street  railways  and  lighting  concerns,  may  be  socially  pref- 
erable because  these  industries  are  monopolies.  Inasmuch 
as  their  charges  and  services  cannot  be  regulated  by  the 
automatic  action  of  competition,  the  only  alternative  to 
public  ownership  is  public  supervision.  Inasmuch  as  the 
latter  is  often  incapable  of  securing  satisfactory  service 
at  fair  prices,  public  ownership  and  management  becomes 
on  the  whole  more  conducive  to  social  welfare.  In  other 
words,  the  losses  through  inefficient  operation  are  more 
than  offset  by  the  gains  from  better  service  and  lower 
charges.  Three  cent  fares  and  adequate  service  on  an  in- 
efficiently managed  municipal  street  railway  are  preferable 
to  five  cent  fares  on  a  privately  owned  street  railway  whose 
management  is  superior.  On  the  other  hand,  all  those  in- 
dustries which  are  not  natural  monopolies  can  be  prevented 
from  practising  extortion  upon  the  public  through  regu- 


164  DISTRIBUTIVE   JUSTICE 

lated  competition.  In  them,  therefore,  the  advantages  of 
private  operation,  of  which  competition  itself  is  not  the 
least,  should  be  retained. 

In  the  second  place,  practically  all  the  public  service 
monopolies  are  simpler  in  structure,  more  routine  in  opera- 
tion, and  more  mature  in  organisation  and  efficiency  than 
the  other  industries.  The  degree  of  managerial  ability 
required,  the  necessity  of  experimenting  with  new  methods 
and  processes,  and  the  opportunity  of  introducing  further 
improvements  in  organisation  are  relatively  less.  Now,  it 
is  precisely  in  these  respects  that  private  has  shown  itself 
superior  to  public  operation.  Initiative,  inventiveness,  and 
eagerness  to  effect  economies  and  increase  profits  are  the 
qualities  in  which  private  management  excels.  When  the 
nature  and  maturity  of  the  concern  have  rendered  these 
qualities  relatively  unimportant,  public  management  can 
exemplify  a  fair  degree  of  efficiency. 

In  the  third  place,  the  ability  of  the  State  to  operate  a 
few  enterprises,  does  not  prove  that  it  could  repeat  the 
performance  with  an  equal  degree  of  success  in  all  indus- 
tries. I  can  drive  two  horses,  but  I  could  not  drive  twen- 
ty-two. No  matter  how  scientific  the  organisation  and 
departmentalisation  of  industries  under  Socialism,  the 
final  control  of  and  responsibility  for  all  of  them  would 
rest  with  one  organ,  one  authority,  namely,  the  city  in 
municipal  industries,  and  the  nation  in  industries  having 
national  scope.  This  would  prove  too  great  a  task,  too 
heavy  a  burden,  for  any  body  of  officials,  for  any  group 
of  human  beings. 

Finally,  it  must  be  kept  in  mind  that  the  publicly  oper- 
ated utilities  are  subject  continuously  to  the  indirect  com- 
petition of  private  management.  By  far  the  greater  part 
of  industry  is  now  under  private  control,  which  sets  the 
pace  for  efficient  operation  in  a  hundred  particulars.  As 
a  consequence,  comparisons  are  steadily  provoked  between 
public  and  private  management,  and  the  former  is  subject 


THE  SOCIALIST   SCHEME   OF   INDUSTRY  1 65 

to  constant  criticism.  The  managers  of  the  State  con- 
cerns are  stimulated  and  practically  compelled  to  emulate 
the  success  of  private  management.  This  factor  is  prob- 
ably more  effective  in  securing  efficiency  in  public  indus- 
,tries  than  all  other  causes  put  together.  In  the  words  of 
Professor  Skelton :  *'  A  limited  degree  of  public  owner- 
ship succeeds  simply  because  it  is  a  limited  degree,  suc- 
ceeds because  private  industry,  in  individual  forms  or  in 
the  socialised  joint  stock  form,  dominates  the  field  as  a 
whole.  It  is  private  industry  that  provides  the  capital,  pri- 
vate industry  that  trains  the  men  and  tries  out  the  methods, 
private  industry  that  sets  the  pace,  and  —  not  the  least  of 
its  services  —  private  industry  that  provides  the  ever-pos- 
sible outlet  of  escape."  ^ 

The  Socialist  expectation  that  altruistic  sentiments  and 
public  honour  would  induce  all  industrial  leaders  and  all 
ordinary  workers  to  exert  themselves  as  effectively  as  they 
now  do  for  the  sake  of  money,  is  based  upon  the  very 
shallow  fallacy  that  what  is  true  of  a  few  men  may  very 
readily  become  true  of  all  men.  There  are,  indeed,  per- 
sons in  every  walk  of  life  who  work  faithfully  under  the 
influence  of  the  higher  motives,  but  they  are  and  always 
have  been  the  exceptions  in  their  respective  classes.  The 
great  majority  have  been  affected  only  feebly,  intermit- 
tently, and  on  the  whole  ineffectively  by  either  love  of 
their  kind  or  the  hope  of  public  approval. 

A  Socialist  order  could  generate  no  forces  which  would 
be  as  productive  of  unselfish  conduct  as  the  motives  that 
are  drawn  from  religion.  History  shows  nothing 
comparable  either  in  extent  or  intensity  to  the  record 
of  self  surrender  and  service  to  the  neighbour  which  are 
due  to  the  latter  influence.  Yet  religion  has  never  been 
able,  even  in  the  periods  and  places  most  thoroughly 
dominated  by  Christianity,  to  induce  more  than  a  small 
minority  of  the  population  to  adopt  that  life  of  altruism 
1" Socialism:  A  Critical  Analysis,"  p.  219. 


1 66  DISTRIBUTIVE  JUSTICE 

which  would  be  required  of  the  great  majority  under 
Socialism. 

Moreover,  the  efficacy  of  the  higher  motives  is  much 
greater  among  men  devoted  to  scientific,  intellectual,  and 
religious  pursuits  than  in  either  the  leaders  or  the  rank  and 
file  engaged  in  industrial  occupations.  The  cause  of  this 
difference  is  to  be  sought  in  the  varying  nature  of  the  two 
classes  of  activity :  the  first  necessarily  develops  an  appre- 
ciation of  the  higher  goods,  the  things  of  the  mind  and 
the  soul;  the  second  compels  the  attention  of  men  to  rest 
upon  matter,  upon  the  things  that  appeal  to  the  senses, 
upon  the  things  that  are  measurable  in  terms  of  money. 

There  is  a  special  fallacy  underlying  the  emphasis 
placed  by  Socialists  on  the  power  of  public  honour.  It 
consists  in  the  failure  to  perceive  that  this  good  declines 
in  efficacy  according  as  the  number  of  its  recipients  in- 
creases. Even  if  all  the  industrial  population  were  will- 
ing to  work  as  hard  for  public  approval  as  they  now  do 
for  money,  the  results  expected  by  Socialists  would  not 
be  forthcoming.  Public  recognition  of  unselfish  service 
is  now  available  in  relatively  great  measure  because  the 
persons  qualifying  for  it  are  relatively  few.  They  easily 
stand  out  conspicuous  among  their  fellows.  Let  their 
numbers  vastly  increase,  and  unselfishness  would  become 
commonplace.  It  would  no  longer  command  popular 
recognition,  save  in  those  who  displayed  it  in  exceptional 
or  heroic  measure.  The  public  would  not  have  the  time 
nor  take  the  trouble  to  notice  and  honour  adequately  every 
floor  walker,  retail  clerk,  factory  operative,  street  cleaner, 
agricultural  labourer,  ditch  digger,  etc.,  who  might  become 
a  candidate  for  such  recognition. 

When  the  Socialists  point  to  such  examples  of  disinter- 
ested public  service  as  that  of  Colonel  Goethals  in  building 
the  Panama  Canal,  they  confound  the  exceptional  with  the 
average.  They  assume  that,  since  an  exceptional  man 
performs  an  exceptional  task  from  high  motives,  all  men 


THE   SOCIALIST   SCHEME  OF   INDUSTRY  167 

can  be  got  to  act  likewise  in  all  kinds  of  operations.  They 
forget  that  the  Panama  Canal  presented  opportunities  of 
self  satisfying  achievement  and  fame  which  do  not  occur 
once  in  a  thousand  years;  that  the  traditions  and  training 
of  the  army  have  during  many  centuries  deliberately  and 
consistently  aimed  and  tended  to  produce  an  exceptionally 
high  standard  of  honour  and  disinterestedness;  that,  even 
so,  the  majority  of  army  officers  have  not  in  their  civil 
assignments  shown  the  same  degree  of  faithfulness  to  the 
public  welfare  as  Colonel  Goethals;  that  the  Canal  was 
built  under  a  regime  of  "  benevolent  despotism,"  which 
placed  no  reliance  upon  the  **  social  mindedness  "  of  the 
subordinate  workers;  and  that  the  latter,  far  from  show- 
ing any  desire  to  qualify  as  altruists  or  public  benefactors, 
demanded  and  received  material  recognition  in  the  form  of 
wages,  perquisites,  and  gratuities  which  greatly  surpassed 
the  remuneration  received  by  any  other  labour  force  in 
history.^  In  a  word,  wherever  in  the  construction  of  the 
Canal  notable  disinterestedness  or  appreciation  of  public 
honour  was  shown,  the  circumstances  were  exceptional; 
where  the  situation  was  ordinary,  the  Canal  builders  were 
unable  to  rise  above  the  ordinary  motives  of  selfish  advan- 
tage. 

Beneath  all  the  Socialist  argument  on  this  subject  lies 
the  assumption  that  the  attitude  of  the  average  man  toward 
the  higher  motives  can  by  some  mysterious  process  be 
completely  revolutionised.  This  is  contrary  to  all  experi- 
ence, and  to  all  reasonable  probability.  Only  a  small 
minority  of  men  have  ever,  in  any  society  or  environment, 
been  dominated  mainly  by  altruism  or  the  desire  of  public 
honour.  What  reason  is  there  to  expect  that  men  will  act 
differently  in  the  future?  Neither  legislation  nor  educa- 
tion can  make  men  love  their  neighbours  more  than  them- 
selves, or  love  the  applause  of  their  neighbours  more  than 
their  own  material  welfare. 

1  C£.  "  The  Panama  Gateway,"  by  Joseph  Bucklin  Bishop,  p.  263. 


l68  DISTRIBUTIVE   JUSTICE 

Restricting  Individual  Liberty 

Even  though  human  nature  should  undergo  the  degree 
of  miraculous  transformation  necessary  to  maintain  an 
efficient  industrial  system  on  Socialist  lines,  such  a  social 
organisation  must  soon  collapse  because  of  its  injurious 
effect  upon  individual  liberty.  Freedom  of  choice  would 
be  abolished  in  the  most  vital  economic  transactions;  for 
there  would  be  but  one  buyer  of  labour,  and  one  seller  of 
commodities.  And  these  two  would  be  identical,  namely, 
the  State.  With  the  exception  of  the  small  minority  that 
might  be  engaged  in  purely  individual  avocations,  and  in 
co-operative  enterprises,  men  would  be  compelled  to  sell 
their  labour  to  either  the  municipality  or  the  national  gov- 
ernment. As  competition  between  these  two  political 
agencies  in  the  matter  of  wages  and  other  conditions  of 
labour  could  not  be  permitted,  there  would  be  virtually 
only  one  employer.  Practically  all  material  goods  would 
have  to  be  purchased  from  either  the  municipal  or  the 
national  shops  and  stores.  Since  the  city  and  the  nation 
would  produce  different  kinds  of  goods,  the  purchaser  of 
any  given  article  would  be  compelled  to  deal  with  one 
seller.  His  freedom  of  choice  would  be  further  restricted 
by  the  fact  that  he  would  have  to  be  content  with  those 
kinds  and  grades  of  commodities  which  the  seller  saw  fit 
to  produce.  He  could  not  create  an  effective  demand  for 
new  forms  and  varieties  of  goods,  as  he  now  does,  by 
stimulating  the  ingenuity  and  acquisitiveness  of  compet- 
ing producers  and  dealers. 

Prices  and  wages  would,  of  course,  be  fixed  beforehand 
by  the  government.  The  supposition  that  this  function 
might  be  left  to  the  workers  in  each  industry  is  utterly  im- 
practicable. Such  an  arrangement  would  involve  a  grand 
scramble  among  the  different  industries  to  see  which  could 
pay  its  own  members  the  highest  wages,  and  charge  its 
neighbours'  members  the  highest  prices.     The  final  result 


THE   SOCIALIST   SCHEME   OF   INDUSTRY  169 

would  be  a  level  of  prices  so  high  that  only  an  alert  and 
vigorous  section  of  the  workers  in  each  industry  could 
find  employment.  Not  only  wages  and  prices  but  hours, 
safety  requirements,  and  all  the  other  general  conditions 
of  employment,  would  be  regulated  by  the  government. 
The  individuals  in  each  industry  could  not  be  permitted 
to  determine  these  matters  any  more  than  they  could  be 
permitted  to  determine  wages.  Moreover,  all  these  regu- 
lations would  from  the  nature  of  the  case  continue  un- 
changed for  a  considerable  period  of  time. 

The  restriction  of  choice  enforced  upon  the  sellers  of 
labour  and  the  buyers  of  goods,  the  utter  dependence  of 
the  population  upon  one  agency  in  all  the  affairs  of  their 
economic  as  well  as  their  political  life,  the  tremendous 
social  power  concentrated  in  the  State,  would  produce  a 
diminution  of  individual  liberty  and  a  perfection  of  politi- 
cal despotism  surpassing  anything  that  the  world  has  ever 
seen.  It  would  not  long  be  tolerated  by  any  self  respect- 
ing people. 

To  reply  that  the  Socialist  order  would  be  a  democracy, 
and  that  the  people  could  vote  out  of  existence  any  dis- 
tasteful regulation,  is  to  play  with  words.  No  matter 
how  responsive  the  governing  and  managing  authorities 
might  be  to  the  popular  will,  the  dependence  of  the  indi- 
vidual would  prove  intolerable.  Not  the  manner  in  which 
this  tremendous  social  power  is  constituted,  nor  the  per- 
sonnel of  those  exercising  it,  but  the  fact  that  so  much 
power  is  lodged  in  one  agency,  and  so  little  immediate  con- 
trol of  his  affairs  left  to  the  individual, —  is  the  heart  of 
the  evil  situation.  In  a  word,  it  is  a  question  of  the  lib- 
erty of  the  individual  versus  the  all  pervading  control  of 
his  actions  by  an  agency  other  than  himself.  Moreover, 
the  people  in  a  democracy  means  a  majority,  or  a  compact 
minority.  Under  Socialism  the  controlling  section  of  the 
voting  population  would  possess  so  much  power,  political 
and  economic,  that  it  could  impose  whatever  conditions  it 


170  DISTRIBUTIVE   JUSTICE 

pleased  upon  the  non-controlling  section  for  an  almost  in- 
definite period  of  time.  The  members  of  the  latter  part 
of  the  population  would  not  only  be  deprived  of  that  im- 
mediate liberty  which  consists  in  the  power  to  determine 
the  details  of  their  economic  life,  but  of  that  remote  lib- 
erty which  consists  in  the  power  to  affect  general  condi- 
tions by  their  votes. 

In  the  last  chapter  we  saw  that  the  claim  to  the  full 
product  of  industry,  made  on  behalf  of  labour  by  the  So- 
cialists, cannot  be  established  on  intrinsic  grounds.  Like 
all  other  claims  to  material  goods,  it  is  valid  only  if  it  can 
be  realised  consistently  with  human  welfare.  Its  validity 
depends  upon  its  feasibility,  upon  the  possibility  of  con- 
structing some  social  system  that  will  enable  it  to  work. 
The  present  chapter  has  shown  that  the  requirements  of 
such  a  system  are  not  met  by  Socialism.  A  Socialist  or- 
ganisation of  industry  would  make  all  sections  of  the  pop- 
ulation, including  the  wage  earning  class,  worse  off  than 
they  are  in  the  existing  industrial  order.  Consequently, 
neither  the  private  ownership  of  capital  nor  the  individual 
receipt  of  interest  can  be  proved  to  be  immoral  by  the 
Socialist  argument. 

Since  private  ownership  and  management  of  capital  are 
superior  to  Socialism,  the  State  is  obliged  to  maintain,  pro- 
tect, and  improve  the  existing  industrial  system.  This  is 
precisely  the  conclusion  that  we  reached  in  chapter  iv  with 
reference  to  private  ownership  of  land.  In  chapter  v  we 
found,  moreover,  that  individual  ownership  of  land  is  a 
natural  right.  The  fundamental  considerations  there  ex- 
amined lead  to  the  parallel  conclusion  that  the  individual 
has  a  natural  right  to  own  capital.  But  we  could  not  im- 
mediately deduce  from  the  right  to  own  land  the  right  to 
take  rent.  Neither  can  we  immediately  deduce  from  the 
right  to  own  capital  the  right  to  take  interest.  The  posi- 
tive establishment  of  the  latter  right  will  occupy  us  in  the 
two  following  chapters. 


CHAPTER  XII 

ALLEGED  INTRINSIC  JUSTIFICATIONS   OF   INTEREST 

In  his  address  as  President  of  the  American  Sociologi- 
cal Society  at  the  annual  meeting,  Dec.  27,  191 3,  Professor 
Albion  W.  Small  denounced  "  the  fallacy  of  treating  cap- 
ital as  though  it  were  an  active  agent  in  human  processes, 
and  crediting  income  to  the  personal  representatives  of 
capital,  irrespective  of  their  actual  share  in  human  serv- 
ice." According  to  his  explicit  declaration,  his  criticism 
of  the  modern  interest-system  was  based  primarily  upon 
grounds  of  social  utility  rather  than  upon  formally  ethical 
considerations. 

A  German  priest  has  attacked  interest  from  the  purely 
moral  viewpoint.^  In  his  view  the  owner  of  any  sort  of 
capital  who  exacts  the  return  of  anything  beyond  the 
principal,  violates  strict  justice.^  The  Church,  he  main- 
tains, has  never  formally  authorised  or  permitted  interest, 
either  on  loans  or  on  producing  capital.  She  has  merely 
tolerated  it  as  an  irremovable  evil. 

Is  there  a  satisfactory  justification  of  interest?  If 
there  is,  does  it  rest  on  individual  or  on  social  grounds? 
That  is  to  say:  is  interest  justified  immediately  and  in- 
trinsically by  the  relations  existing  between  the  owner  and 
the  user  of  capital?  Or,  is  rendered  morally  good  owing 
to  its  effects  upon  social  welfare?  Let  us  see  what  light 
is  thrown  on  these  questions  by  the  anti-usury  legislation 
of  the  Catholic  Church. 

1  Hohoff,  "  Die  Bedeutung  der  Marxschen  Kapitalkritik  " ;  Pader- 
born,  1908. 

2  Pp.  64-67,  88,  89.  96. 

171 


172  DISTRIBUTIVE   JUSTICE 

Attitude  of  the  Church  Toward  Interest  on  Loans 

During  the  Middle  Ages  all  interest  on  loans  was  for- 
bidden under  severe  penalties  by  repeated  ordinances  of 
Popes  and  Councils.^  Since  the  end  of  the  seventeenth 
century  the  Church  has  quite  generally  permitted  interest 
on  one  or  more  extrinsic  grounds,  or  "  titles."  The  first 
of  these  titles  was  known  as  "  lucrum  cessans,"  or  relin- 
quished gain.  It  came  into  existence  whenever  a  person 
who  could  have  invested  his  money  in  a  productive  ob- 
ject, for  example,  a  house,  a  farm,  or  a  mercantile  enter- 
prise, decided  instead  to  lend  the  money.  In  such  cases 
the  interest  on  the  loan  was  regarded  as  proper  compen- 
sation for  the  gain  which  the  owner  might  have  obtained 
from  an  investment  on  his  own  account.  The  title  created 
by  this  situation  was  called  "  extrinsic  "  because  it  arose 
out  of  circumstances  external  to  the  essential  relations  of 
borrower  and  lender.  Not  because  of  the  loan  itself,  but 
because  the  loan  prevented  the  lender  from  investing  his 
money  in  a  productive  enterprise,  was  interest  on  the 
former  held  to  be  justified.  In  other  words,  interest  on 
the  loan  was  looked  upon  as  merely  the  fair  equivalent  of 
the  interest  that  might  have  been  obtained  on  the  invest- 
ment. 

During  the  seventeenth,  eighteenth,  and  nineteenth  cen- 
turies, another  title  or  justification  of  loan-interest  found 
some  favour  among  Catholic  moralists.  This  was  the 
"  praemium  legale,"  or  legal  rate  of  interest  allowed  by 
civil  governments.  Wherever  the  State  authorised  a 
definite  rate  of  interest,  the  lender  might,  according  to 
these  writers,  take  advantage  of  it  with  a  clear  conscience. 

To-day  the  majority  of  Catholic  authorities  on  the  sub- 
ject prefer  the  title  of  virtual  productivity  as  a  justifica- 
tion.    Money,  they  contend,   has  become  virtually  pro- 

1  Cf .  Van  Roey,  "  De  Justo  Auctario  ex  Contractu  Crediti " ;  and 
Ashley,  "  English  Economic  History." 


ALLEGED    INTRINSIC    JUSTIFICATIONS    OF    INTEREST        1 73 

ductive.  It  can  readily  be  exchanged  for  income-bearing 
or  productive  property,  such  as,  land,  houses,  railroads, 
machinery,  and  distributive  establishments.  Hence  it  has 
become  the  economic  equivalent  of  productive  capital,  and 
the  interest  which  is  received  on  it  through  a  loan  is  quite 
as  reasonable  as  the  annual  return  to  the  owner  of  pro- 
ductive capital.  Between  this  theory  and  the  theory  con- 
nected with  "  lucrum  cessans  "  the  only  difference  is  that 
the  former  shifts  the  justification  of  interest  from  the 
circumstances  and  rights  of  the  lender  to  the  present  na- 
ture of  the  money  itself.  Not  merely  the  fact  that  the 
individual  will  suffer  if,  instead  of  investing  his  money  he 
loans  it  without  interest,  but  the  fact  that  money  is  gen- 
erally and  virtually  productive,  is  the  important  element  in 
the  newer  theory.  In  practice,  however,  the  two  explana- 
tions or  justifications  come  to  substantially  the  same  thing. 

Nevertheless,  the  Church  has  given  no  positive  approval 
to  any  of  the  foregoing  theories.  In  the  last  formal  pro- 
nouncement by  a  Pope  on  the  subject,  Benedict  XIV  * 
condemned  anew  all  interest  that  had  no  other  support 
than  the  intrinsic  conditions  of  the  loan  itself.  At  the 
same  time,  he  declared  that  he  had  no  intention  of  denying 
the  lawfulness  of  interest  which  was  received  in  virtue  of 
the  title  of  "  lucrum  cessans,"  nor  the  lawfulness  of  in- 
terest or  profits  arising  out  of  investments  in  productive 
property.  In  other  words,  the  authorisation  that  he  gave 
to  both  kinds  of  interest  was  merely  negative.  He  re- 
frained from  condemning  them. 

In  the  Responses  given  by  the  Roman  Congregations 
from  1822  onward  to  questions  relating  to  the  lawfulness 
of  loan- interest,  we  may  profitably  consider  four  principal 
features.  First,  they  declare  more  or  less  specifically  that 
interest  may  be  taken  in  the  absence  of  the  title  of  "  lucrum' 
cessans  " ;  second,  some  of  them  definitely  admit  the  title 
of  "  praemium  legale,"  or  civil  authorisation,  as  sufficient 

1  Encyclical,  "  Vix  Pervenit,"  1745. 


174  DISTRIBUTIVE   JUSTICE 

to  give  the  practice  moral  sanction;  third,  they  express  a 
genuine  permission,  not  a  mere  toleration,  of  interest  tak- 
ing; fourth,  none  of  them  explicitly  declares  that  any  of 
the  titles  or  reasons  for  receiving  loan-interest  will  neces- 
sarily or  always  give  the  lender  a  strict  right  thereto. 
None  of  them  contains  a  positive  and  reasoned  approval 
of  the  practice.  Most  of  them  merely  decide  that  per- 
sons who  engage  in  it  are  not  to  be  disturbed  in  conscience, 
so  long  as  they  stand  ready  to  submit  to  a  formal  decision 
on  the  subject  by  the  Holy  See.  The  insertion  of  the 
latter  condition  clearly  intimates  that  some  day  interest 
taking  might  be  formally  and  officially  condemned. 

Should  such  a  condemnation  ever  appear,  it  would  not 
contradict  any  moral  principle  contained  in  the  "  Roman 
Responses,"  nor  in  the  present  attitude  of  the  Church  and 
of  Catholic  moralists.  Undoubtedly  it  could  come  only  as 
the  result  of  a  change  in  the  organisation  of  industry,  just 
as  the  existing  ecclesiastical  attitude  has  followed  the 
changed  economic  conditions  since  the  Middle  Ages. 

All  the  theological  discussion  on  the  subject,  and  all  the 
authoritative  ecclesiastical  declarations  indicate,  therefore, 
that  interest  on  loans  is  to-day  regarded  as  lawful  because 
a  loan  is  the  economic  equivalent  of  an  investment.  Evi- 
dently this  is  good  logic  and  common  sense.  If  it  is  right 
for  the  stockholder  of  a  railway  to  receive  dividends,  it  is 
equally  right  for  the  bondholder  to  receive  interest.  If  it 
is  right  for  a  merchant  to  take  from  the  gross  returns  of 
his  business  a  sum  sufficient  to  cover  interest  on  his  capi- 
tal, it  is  equally  right  for  the  man  from  whom  he  has  bor- 
rowed money  for  the  enterprise  to  exact  interest.  The 
money  in  a  loan  is  economically  equivalent  to,  convertible 
into,  concrete  capital.  It  deserves,  therefore,  the  same 
treatment  and  the  same  rewards.  The  fact  that  the  in- 
vestor undergoes  a  greater  risk  than  the  lender,  and  the 
fact  that  the  former  often  performs  labour  in  connection 
with  the  operation  of  his  capital,  have  no  bearing  on  the 


ALLEGED    INTRINSIC    JUSTIFICATIONS    OF    INTEREST        iy$ 

moral  problem;  for  the  investor  is  repaid  for  his  extra 
risk  and  labour  by  the  profits  which  he  receives,  and  which 
the  lender  does  not  receive.  As  a  mere  recipient  of  in- 
terest, the  investor  undergoes  no  more  risk  nor  exertion 
than  does  the  lender.  His  claim  to  interest  is  no  better 
than  that  of  the  latter. 

Interest  on  Productive  Capital 

On  what  ground  does  the  Church  or  Catholic  theological 
opinion  justify  interest  on  invested  capital?  on  the  shares 
of  the  stockholders  in  corporations?  on  the  capital  of  the 
merchant  and  the  manufacturer? 

In  the  early  Middle  Ages  the  only  recognised  titles  to 
gain  from  the  ownership  of  property  were  labour  and 
"isk.^  Down  to  the  beginning  of  the  fifteenth  century 
substantially  all  the  incomes  of  all  classes  could  be  ex- 
plained and  justified  by  one  or  other  of  these  two  titles; 
for  the  amount  of  capital  in  existence  was  inconsiderable, 
and  the  number  of  large  personal  incomes  insignificant. 

When,  however,  the  traffic  in  rent  charges  and  the  oper- 
ation of  partnerships,  especially  the  "  contractus  trinus," 
or  triple  contract,  had  become  fairly  common,  it  was  ob- 
vious that  the  profits  from  these  practices  could  not  be  cor- 
rectly attributed  to  either  labour  or  risk.  The  person  who 
bought,  not  the  land  itself,  but  the  right  to  receive  a  por- 
tion of  the  rent  thereof,  and  the  person  who  became  the 
silent  member  of  a  partnership,  evidently  performed  no 
labour  beyond  that  involved  in  making  the  contract.  And 
their  profits  clearly  exceeded  a  fair  compensation  for  their 
risks,  inasmuch  as  the  profits  produced  a  steady  income. 
How  then  were  they  to  be  justified? 

A  few  authorities  maintained  that  such  mcomes  had  no 
justification.  In  the  thirteenth  century  Henry  of  Ghent 
condemned  the  traffic  in  rent  charges;  in  the  sixteenth 
Dominicus  Soto  maintained  that  the  returns  to  the  silent 

1  Cf .  St.  Thomas,  "  Summa  Theologica,"  2a  2ae,  q.  78,  a.  2  et  3. 


176  DISTRIBUTIVE   JUSTICE 

partner  in  an  enterprise  ought  not  to  exceed  a  fair  equiva- 
lent for  his  risks ;  about  the  same  time  Pope  Sixtus  V  de- 
nounced the  triple  contract  as  a  form  of  usury.  Never- 
theless, the  great  majority  of  writers  admitted  that  all 
these  transactions  were  morally  lawful,  and  the  gains 
therefrom  just.  For  a  time  these  writers  employed 
merely  negative  and  a  pari  arguments.  Gains  from  rent 
charges,  they  pointed  out,  were  essentially  as  licit  as  the 
net  rent  received  by  the  owner  of  the  land;  and  the  inter- 
est received  by  a  silent  partner,  even  in  a  triple  contract, 
had  quite  as  sound  a  moral  basis  as  rent  charges.  By  the 
beginning  of  the  seventeenth  century  the  leading  authori- 
ties were  basing  their  defence  of  industrial  interest  on 
positive  grounds.  Lugo,  Lessius,  and  Molina  adduced  the 
productivity  of  capital  goods  as  a  reason  for  allowing 
gains  to  the  investor.  Whether  they  regarded  productiv- 
ity as  in  itself  a  sufficient  justification  of  interest,  or 
merely  as  a  necessary  prerequisite  to  justification,  cannot 
be  determined  with  certainty. 

At  present  the  majority  of  Catholic  writers  seem  to 
think  that  a  formal  defence  of  interest  on  capital  is  un- 
necessary. Apparently  they  assume  that  interest  is  justi- 
fied by  the  mere  productivity  of  capital.  However,  this 
view  has  never  been  explicitly  approved  by  the  Church. 
While  she  permits  and  authorises  interest,  she  does  not 
define  its  precise  moral  basis. 

So  much  for  the  teaching  of  ecclesiastical  and  ethical 
authorities.  What  are  the  objective  reasons  in  favour  of 
the  capitalist's  claim  to  interest?  In  this  chapter  we  con- 
sider only  the  intrinsic  reasons,  those  arising  wholly  out 
of  the  relations  between  the  interest-receiver  and  the  in- 
terest-payer. Before  taking  up  the  subject  it  may  be  well 
to  point  out  the  source  from  which  interest  comes,  the 
class  in  the  community  that  pays  the  interest  to  the  capi- 
talist. From  the  language  sometimes  used  by  Socialists 
it  might  be  inferred  that  interest  is  taken  from  the  la- 


ALLEGED    INTRINSIC    JUSTIFICATIONS    OF    INTEREST        1 7/ 

bourer,  and  that  if  it  were  abolished  he  would  be  the  chief 
if  not  the  only  beneficiary.  This  is  incorrect.  At  any 
given  time  interest  on  producing  capital  is  paid  by  the 
consumer.  Those  who  purchase  the  products  of  industry 
must  give  prices  sufficiently  high  to  provide  interest  in 
addition  to  the  other  expenses  of  production.  Were  in- 
terest abolished  and  the  present  system  of  private  capital 
continued,  the  gain  would  be  mainly  reaped  by  the  con- 
sumer in  the  form  of  lower  prices;  for  the  various  capi- 
talist directors  of  industry  would  bring  about  this  result 
through  their  competitive  efforts  to  increase  sales.  Only 
those  labourers  who  were  sufficiently  organised  and  suffi- 
ciently alert  to  make  effective  demands  for  higher  wages  be- 
fore the  movement  toward  lower  prices  had  got  well  under 
way,  would  obtain  any  direct  benefit  from  the  change.  The 
great  majority  of  labourers  would  gain  far  more  as  con- 
sumers than  as  wage  earners.  Speaking  generally,  then, 
we  may  say  that  the  capitalist's  gain  is  the  consumer's 
loss,  and  the  question  of  the  justice  of  interest  is  a  ques- 
tion between  the  capitalist  and  the  consumer. 

The  intrinsic  or  individual  grounds  upon  which  the 
capitalist's  claim  to  interest  has  been  defended  are  mainly 
three:  productivity,  service,  and  abstinence.  They  will 
be  considered  in  this  order. 

The  Claims  of  Productivity 

It  is  sometimes  asserted  that  the  capitalist  has  as  good 
a  right  to  interest  as  the  farmer  has  to  the  offspring  of 
his  animals.  Both  are  the  products  of  the  owner's  prop- 
erty. In  two  respects,  however,  the  comparison  is  inade- 
quate and  misleading.  Since  the  ovnier  of  a  female  ani- 
mal contributes  labour  or  money  or  both  toward  her  care 
during  the  period  of  gestation,  his  claim  to  the  offspring 
is  based  in  part  upon  these  grounds,  and  only  in  part  upon 
the  title  of  interest.  In  the  second  place,  the  offspring  is 
the  definite  and  easily  distinguishable  product  of  its  par- 


178  DISTRIBUTIVE   JUSTICE 

ent.  But  the  sixty  dollars  derived  as  interest  from  the 
ownership  of  ten  shares  of  railway  stock,  cannot  be  iden- 
tified as  the  exact  product  of  one  thousand  dollars  of 
railway  property.  No  man  can  tell  whether  this  amount 
of  capital  has  contributed  more  or  less  than  sixty  dollars 
of  value  to  the  joint  product,  i.e.,  railway  services.  The 
same  is  true  of  any  other  share  or  piece  of  concrete  capital. 
All  that  we  know  is  that  the  interest,  be  it  five,  six,  seven, 
or  some  other  per  cent.,  describes  the  share  of  the  product 
which  goes  to  the  owner  of  capital  in  the  present  condi- 
tions of  industry.  It  is  the  conventional  not  the  actual 
and  physical  product  of  capital. 

Another  faulty  analogy  is  that  drawn  between  the  pro- 
ductivity of  capital  and  the  productivity  of  labour.  Fol- 
lowing the  terminology  of  the  economists,  most  persons 
think  of  land,  labour,  and  capital  as  productive  in  the  same 
sense.  Hence  the  productivity  of  capital  is  easily  assumed 
to  have  the  same  moral  value  as  the  productive  action  of 
human  beings;  and  the  right  of  the  capitalist  to  a  part 
of  the  product  is  put  on  the  same  moral  basis  as  the  right 
of  the  labourer.  Yet  the  differences  between  the  two  kinds 
of  productivity,  and  between  the  two  moral  claims  to  the 
product  are  more  important  than  their  resemblances. 

In  the  first  place,  there  is  an  essential  physical  differ- 
ence. As  an  instrument  of  production,  labour  is  active, 
capital  is  passive.  As  regards  its  worth  or  dignity,  labour 
is  the  expenditure  of  human  energy,  the  output  of  a  person, 
while  capital  is  a  material  thing,  standing  apart  from  a 
personality,  and  possessing  no  human  quality  or  human 
worth.  These  significant  intrinsic  or  physical  differences 
forbid  any  immediate  inference  that  the  moral  claims  of 
the  owners  of  capital  and  labour  are  equally  valid.  We 
should  logically  expect  to  find  that  their  moral  claims  are 
unequal. 

This  expectation  is  realised  when  we  examine  the  bear- 
ing of  the  two  kinds  of  productivity  upon  human  welfare. 


ALLEGED    INTRINSIC    JUSTIFICATIONS    OF   INTEREST       1/9 

In  the  exercise  of  productive  effort  the  average  labourer 
undergoes  a  sacrifice.  He  is  engaged  in  a  process  that  is 
ordinarily  irksome.  To  require  from  him  this  toilsome 
expenditure  of  energy  without  compensation,  would  make 
him  a  mere  instrument  of  his  fellows.  It  would  subordi- 
nate him  and  his  comfort  to  the  aggrandisement  of  beings 
who  are  not  his  superiors  but  his  moral  equals.  For  he 
is  a  person ;  they  are  no  more  than  persons.  On  the  other 
hand,  the  capitalist  as  such,  as  the  recipient  of  interest, 
performs  no  labour,  painful  or  otherwise.  Not  the  capi- 
talist, but  capital  participates  in  the  productive  process. 
Even  though  the  capitalist  should  receive  no  interest,  the 
productive  functioning  of  capital  would  not  subordinate 
him  to  his  fellows  in  the  way  that  wageless  labour  would 
subordinate  the  labourer. 

The  precise  and  fundamental  reason  for  according  to 
the  labourer  his  product  is  that  this  is  the  only  rational  rule 
of  distribution.  When  a  man  makes  a  useful  thing  out 
of  materials  that  are  his,  he  has  a  strict  right  to  the  product 
simply  because  there  is  no  other  reasonable  method  of 
distributing  the  goods  and  opportunities  of  the  earth.  If 
another  individual,  or  society,  were  permitted  to  take  this 
product,  industry  would  be  discouraged,  idleness  fostered, 
and  reasonable  life  and  self  development  rendered  impos- 
sible. Direful  consequences  of  this  magnitude  would  not 
follow  the  abolition  of  interest. 

Perhaps  the  most  important  difference  between  the 
moral  claims  of  capitalist  and  labourer  is  the  fact  that  for 
the  latter  labour  is  the  sole  means  of  livelihood.  .Unless  he 
is  compensated  for  his  product  he  will  perish.  But  the 
capitalist  has  in  addition  to  the  interest  that  he  receives 
the  ability  to  work.  Were  interest  abolished  he  would 
still  be  in  as  good  a  position  as  the  labourer.  The  prod- 
uct of  the  labourer  means  to  him  the  necessaries  of  life; 
the  product  of  the  capitalist  means  to  him  goods  in  excess 
of  a  mere  livelihood.     Consequently  their  claims  to  the 


l8o  DISTRIBUTIVE  JUSTICE 

product  are  greatly  unequal  in  vital  importance  and  moral 
value. 

The  foregoing  considerations  show  that  even  the  claim 
of  the  labourer  to  his  product  is  not  based  upon  merely 
intrinsic  grounds.  It  does  not  spring  entirely  from  the 
mere  fact  that  he  has  produced  the  product,  from  the  mere 
relation  between  producer  and  thing  produced.  If  this  is 
true  of  labour-productivity  we  should  expect  to  find  it  even 
more  evident  with  regard  to  the  productivity  of  capital; 
for  the  latter  is  passive  instead  of  active,  non  rational 
instead  of  human. 

The  expectation  is  well  founded.  Not  a  single  con- 
clusive argument  can  be  brought  forward  to  show  that 
the  productivity  of  capital  directly  and  necessarily  confers 
upon  the  capitalist  a  right  to  the  interest-product.  All 
the  attempted  arguments  are  reducible  to  two  formulas : 
"res  fructificat  domino"  ("a  thing  fructifies  to  its 
owner")  and  "the  effect  follows  its  cause."  The  first 
of  these  was  originally  a  legal  rather  than  an  ethical 
maxim;  a  rule  by  which  the  title  was  determined  in  the 
civil  law,  not  a  principle  by  which  the  right  was  deter- 
mined in  morals.  The  second  is  an  irrelevant  platitude. 
As  a  juristic  principle,  neither  is  self  evident.  Why 
should  the  owner  of  a  piece  of  capital,  be  it  a  house,  a  ma- 
chine, or  a  share  of  railway  stock,  have  a  right  to  its  prod- 
uct, when  he  has  expended  neither  time,  labour,  money, 
nor  inconvenience  of  any  kind?  To  answer,  "  because  the 
thing  which  produced  the  product  belongs  to  him,"  is 
merely  to  beg  the  question.  To  answer,  "  because  the 
effect  follows  the  cause,"  is  to  make  a  statement  which 
has  nothing  to  do  with  the  question.  What  we  want  to 
know  is  why  the  ownership  of  a  productive  thing  gives  a 
right  to  the  product;  why  this  particular  effect  should 
follow  its  cause  in  this  particular  way.  To  answer  by 
repeating  under  the  guise  of  sententious  formulas  the 
thesis  to  be  proved,  is  scarcely  satisfactory  or  convincing. 


ALLEGED    INTRINSIC    JUSTIFICATIONS    OF    INTEREST        l8l 

To  answer  that  if  the  capitalist  were  not  given  interest 
industry  and  thrift  would  decrease  and  human  welfare 
suffer,  is  to  abandon  the  intrinsic  argument  entirely.  It 
brings  in  the  extrinsic  consideration  of  social  conse- 
quences. 

The  Claims  of  Service 

The  second  intrinsic  ground  upon  which  interest  is  de- 
fended, is  the  service  performed  by  the  capitalist  when  he 
permits  his  capital  to  be  used  in  production.  Without 
capital,  labourers  and  consumers  would  be  unable  to  com- 
mand more  than  a  fraction  of  their  present  means  of  live- 
lihood. From  this  point  of  view  we  see  that  the  service 
in  question  is  worth  all  that  is  paid  in  the  form  of  interest. 
Nevertheless  it  does  not  follow  that  the  capitalist  has  a 
claim  in  strict  justice  to  any  payment  for  this  service. 
According  to  St.  Thomas,  a  seller  may  not  charge  a  buyer 
an  extra  amount  merely  because  of  the  extra  value  at- 
tached to  the  commodity  by  the  latter.^  In  other  words, 
a  man  cannot  justly  be  required  to  pay  an  unusual  price 
for  a  benefit  or  advantage  or  service,  when  the  seller 
undergoes  no  unusual  deprivation.  Father  Lehmkuhl  car- 
ries the  principle  further,  and  declares  that  the  seller  has 
a  right  to  compensation  only  when  and  to  the  extent  that 
he  undergoes  a  privation  or  undertakes  a  responsibility.^ 
According  to  this  rule,  the  capitalist  would  have  no  right 
to  interest;  for  as  mere  interest-receiver  he  undergoes  no 
privation.  His  risk  and  labour  are  remunerated  in  profits, 
while  the  responsibility  of  not  withdrawing  from  produc- 
tion something  that  can  continue  in  existence  only  by  con- 
tinuing in  production,  is  scarcely  deserving  of  a  reward 
according  to  the  canons  of  strict  justice. 

Whatever  we  may  think  of  this  argument  from  author- 
ity, we  find  it  impossible  to  prove  objectively  that  a  man 

1 "  Secunda  Secondae,"  q.  77,  a.  i,  in  corp. 
2"Theologia  Moralis,"  I,  no.  1050. 


l82  DISTRIBUTIVE   JUSTICE 

who  renders  a  service  to  another  has  an  intrinsic  right  to 
anything  beyond  compensation  for  the  expenditure  of 
money  or  labour  involved  in  performing  the  service.  The 
man  who  throws  a  life  preserver  to  a  drowning  person  may 
justly  demand  a  payment  for  his  trouble.  On  any  recog- 
nised basis  of  compensation,  this  payment  will  not  exceed 
a  few  dollars.  Yet  the  man  whose  life  is  in  danger  would 
pay  a  million  dollars  for  this  service  if  he  were  extremely 
rich.  He  would  regard  the  service  as  worth  this  much 
to  him.  Has  the  man  with  the  life  preserver  a  right  to 
exact  such  a  payment?  Has  he  a  right  to  demand  the 
full  value  of  the  service?  No  reasonable  person  would 
answer  this  question  otherwise  than  in  the  negative.  H 
the  performer  of  the  service  may  not  charge  the  full  value 
thereof,  as  measured  by  the  estimate  put  upon  it  by  the 
recipient,  it  would  seem  that  he  ought  not  to  demand  any- 
thing in  excess  of  a  fair  price  for  his  trouble.  In  other 
words,  he  may  not  justly  exact  anything  for  the  service 
as  such. 

It  would  seem,  then,  that  the  capitalist  has  no  moral 
claim  to  pure  interest  on  the  mere  ground  that  the  use  of 
his  capital  in  production  constitutes  a  service  to  labourers 
and  consumers.  It  would  seem  that  he  has  no  right  to 
demand  a  payment  for  a  costless  service. 

The  Claims  of  Abstinence 

The  third  and  last  of  the  intrinsic  justifications  of  inter- 
est that  we  shall  consider  is  abstinence.  This  argument 
is  based  upon  the  contention  that  the  person  who  saves 
his  money,  and  invests  it  in  the  instruments  of  production 
undergoes  a  sacrifice  in  deferring  to  the  future  satisfac- 
tions that  he  might  enjoy  to-day.  One  hundred  dollars 
now  is  worth  as  much  as  one  hundred  and  five  dollars  a 
year  hence.  That  is,  when  both  are  estimated  from  the 
viewpoint  of  the  present.  This  sacrifice  of  present  to 
future  enjoyment  which  contributes  a  service  to  the  com- 


ALLEGED    INTRINSIC    JUSTIFICATIONS    OF    INTEREST        1 83 

munity  in  the  form  of  capital,  creates  a  just  claim  upon 
the  community  to  compensation  in  the  form  of  interest. 
If  the  capitalist  is  not  rewarded  for  this  inconvenience 
he  is,  like  the  unpaid  labourer,  subordinated  to  the  ag- 
grandisement of  his  fellows. 

Against  this  argument  we  may  place  the  extreme  refu- 
tation attempted  by  the  Socialist  leader,  Ferdinand 
Lassalle : 

"  But  the  profit  of  capital  is  the  reward  of  abstinence. 
Truly  a  happy  phrase!  European  millionaires  are  ascet- 
ics, Indian  penitents,  modern  St.  Simons  Stylites,  who 
perched  on  their  columns,  with  withered  features  and 
arms  and  bodies  thrust  forward,  hold  out  a  plate  to  the 
passers-by  that  they  may  receive  the  wages  of  their  priva- 
tions !  In  the  midst  of  this  sacro-saint  group,  high  above 
his  fellow-mortifiers  of  the  flesh,  stands  the  Holy  House 
of  Rothschild.  That  is  the  real  truth  about  our  present 
society!  How  could  I  have  hitherto  blundered  on  this 
point  as  I  have  ?  "  ^ 

Obviously  this  is  a  malevolently  one-sided  implication 
concerning  the  sources  of  capital.  But  it  is  scarcely  less 
adequate  than  the  explanation  in  opposition  to  which  it 
has  been  quoted.  Both  fail  to  distinguish  between  the 
different  kinds  of  savers,  the  different  kinds  of  capital- 
owners.  For  the  purposes  of  our  inquiry  savings  may 
be  divided  into  three  classes. 

First,  those  which  are  accumulated  and  invested  auto- 
matically. Very  rich  persons  save  a  great  deal  of  money 
that  they  have  no  desire  to  spend,  since  they  have  already 
satisfied  or  safeguarded  all  the  wants  of  which  they  are 
conscious.  Evidently  this  kind  of  saving  involves  no  real 
sacrifice.  To  it  the  words  of  Lassalle  are  substantially 
applicable,  and  the  claim  to  interest  for  abstinence  de- 
cidedly inapplicable. 

Second,  savings  to  provide  for  old  age  and  other  future 

i"What  is  Capital?"  p.  27. 


l84  DISTRIBUTIVE   JUSTICE 

contingencies  which  are  estimated  as  more  important  than 
any  of  the  purposes  for  which  the  money  might  now  be 
expended.  Were  interest  abolished  this  kind  of  saving 
would  be  even  greater  than  it  is  at  present;  for  a  larger 
total  would  be  required  to  equal  the  fund  that  is  now  pro- 
vided through  the  addition  of  interest  to  the  principal. 
In  a  no-interest  regime  one  thousand  dollars  would  have 
to  be  set  aside  every  year  in  order  to  total  twenty  thou- 
sand dollars  in  twenty  years ;  when  interest  is  accumulated 
on  the  savings,  a  smaller  annual  amount  will  suffice  to 
produce  the  same  fund.  Inasmuch  as  this  class  of  persons 
would  save  in  an  even  greater  degree  without  interest,  it 
is  clear  that  they  regard  the  sacrifice  involved  as  fully 
compensated  in  the  resulting  provision  for  the  future.  In 
their  case  sacrifice  is  amply  rewarded  by  accumulation. 
Their  claim  to  additional  compensation  in  the  form  of 
interest  does  not  seem  to  have  any  valid  basis.  In  the 
words  of  the  late  Professor  Devas,  "  there  is  ample  re- 
ward given  without  any  need  of  any  interest  or  dividend. 
For  the  workers  with  heads  or  hands  keep  the  property 
intact,  ready  for  the  owner  to  consume  whenever  con- 
venient, when  he  gets  infirm  or  sick,  or  when  his  chil- 
dren have  grown  up,  and  can  enjoy  the  property  with 
him."i 

The  third  kind  of  saving  is  that  which  is  made  by  per- 
sons who  could  spend,  and  have  some  desire  to  spend, 
more  on  present  satisfactions,  and  who  have  already  pro- 
vided for  all  future  wants  in  accordance  with  the  standards 
of  necessaries  and  comforts  that  they  have  adopted. 
Their  fund  for  the  future  is  already  sufficient  to  meet  all 
those  needs  which  seem  weightier  than  their  present  un- 
satisfied wants.  If  the  surplus  in  question  is  saved  it  will 
go  to  supply  future  desires  which  are  no  more  important 
than  those  for  which  it  might  be  expended  now.  In 
other  words,  the  alternatives  before  the  prospective  saver 

1 "  Political  Economy,"  p.  507. 


ALLEGED    INTRINSIC    JUSTIFICATIONS    OF    INTEREST        185 

are  to  procure  a  given  amount  of  satisfaction  to-day,  or 
to  defer  the  same  degree  of  satisfaction  to  a  distant  day. 

In  this  case  the  inducement  of  interest  will  undoubtedly 
be  necessary  to  bring  about  saving.  As  between  equal 
amounts  of  satisfaction  at  different  times,  the  average 
person  will  certainly  prefer  those  of  the  present  to  those 
of  the  future.  He  will  not  decide  in  favour  of  the  future 
unless  the  satisfactions  then  obtainable  are  to  be  greater 
in  quantity.  To  this  situation  the  rule  that  deferred  en- 
joyments are  worth  less  than  present  enjoyments,  is 
strictly  applicable.  The  increased  quantity  of  future 
satisfaction  which  is  necessary  to  turn  the  choice  from  the 
present  to  the  future,  and  to  determine  that  the  surplus 
shall  be  saved  rather  than  spent,  can  be  provided  only 
through  interest.  In  this  way  the  accumulations  of  inter- 
est and  savings  will  make  the  future  fund  equivalent  to  a 
larger  amount  of  enjoyment  or  utility  than  could  be 
obtained  if  the  surplus  were  exchanged  for  the  goods  of 
the  present.  "  Interest  magnifies  the  distant  object." 
Whenever  this  magnifying  power  seems  sufficiently  great 
to  outweigh  the  advantage  of  present  over  future  satis- 
factions, the  surplus  will  be  saved  instead  of  spent. 

Among  the  well-to-do  there  is  probably  a  considerable 
number  of  persons  who  take  this  attitude  toward  a  con- 
siderable part  of  their  savings.  Since  they  would  not 
make  these  savings  without  the  inducement  of  interest, 
they  regard  the  latter  as  a  necessary  compensation  for  the 
sacrifice  of  postponed  enjoyment.  In  a  general  way  we 
may  say  that  they  have  a  strict  right  to  this  interest  on 
the  intrinsic  ground  of  sacrifice.  Inasmuch  as  the  com- 
munity benefits  by  the  savings,  it  may  quite  as  fairly  be 
required  to  pay  for  the  antecedent  sacrifices  of  the  savers 
as  for  the  inconvenience  undergone  by  the  performer  of 
any  useful  labour  or  service. 

Summing  up  the  matter  regarding  the  intrinsic  justi- 
fication of  interest,  we  find  that  the  titles  of  productivity 


l86  DISTRIBUTIVE  JUSTICE 

and  service  do  not  conclusively  establish  the  strict  right 
of  the  capitalist  to  interest,  and  that  the  title  of  abstinence 
is  morally  valid  for  only  a  portion,  probably  a  rather  small 
portion,  of  the  total  amount  of  interest  now  received  by 
the  owners  of  capital.  Consequently  interest  as  a  whole 
is  not  conclusively  vindicated  on  individual  grounds.  If 
it  is  to  be  proved  morally  lawful  its  justification  must  be 
sought  in  extrinsic  and  social  considerations.  This  in- 
quiry will  form  the  subject  of  the  next  chapter. 


CHAPTER  XIII 

SOCIAL  AND  PRESUMPTIVE  JUSTIFICATIONS  OF  INTEREST 

As  we  saw  in  the  last  chapter,  interest  cannot  be  con- 
clusively justified  on  the  ground  of  either  productivity  or 
service.  It  is  impossible  to  demonstrate  that  the  capitalist 
has  a  strict  right  to  interest  because  his  capital  produces 
interest,  or  because  it  renders  a  service  to  the  labourer  or 
the  consumer.  A  part,  probably  a  small  part,  of  the  inter- 
est now  received  can  be  fairly  justified  by  the  title  of 
sacrifice.  Some  present  owners  of  capital  would  not  have 
saved  had  they  not  expected  to  receive  interest.  In  their 
case  interest  may  be  regarded  as  a  just  compensation  for 
the  sacrifice  that  they  underwent  when  they  decided  to 
save  instead  of  consuming. 

Limitations  of  the  Sacrifice  Principle 

Nevertheless  these  men  would  sufifer  no  injustice  if  in- 
terest were  now  to  be  abolished.  Up  to  the  moment  of  the 
change,  they  would  have  been  in  receipt  of  adequate  com- 
pensation; thereafter,  they  would  be  in  exactly  the  same 
position  as  when  they  originally  chose  to  save  rather  than 
consume.  They  would  still  be  able  to  sell  their  capital, 
and  convert  the  proceeds  to  their  immediate  uses  and 
pleasures.  In  this  case  they  would  obviously  have  no 
further  claim  upon  the  community  for  interest.  On  the 
other  hand,  they  could  retain  the  ownership  of  their  cap- 
ital, and  postpone  its  consumption  to  some  future  time. 
In  making  this  choice  they  would  regard  future  as  more 
important  than  present  consumption,  and  the  superiority 
of  future  enjoyment  as  sufficiently  great  to  compensate 

187 


1 88  DISTRIBUTIVE  JUSTICE 

them  for  the  sacrifice  of  postponement.  Hence  they 
would  have  no  moral  claim  to  interest  on  the  ground  of 
abstinence.  In  general,  then,  the  sacrifice-justification  of 
interest  continues  only  so  long  as  the  interest  continues. 
It  extends  only  to  the  interest  received  by  certain  cap- 
italists in  certain  circumstances,  not  to  all  interest  in  all 
circumstances.  Therefore,  it  presents  no  moral  obstacle 
to  the  complete  abolition  of  interest. 

Since  probably  the  greater  part  of  the  interest  now 
received  cannot  be  justified  on  intrinsic  grounds,  and  since 
that  part  of  it  which  is  thus  justified  could  be  abolished 
consistently  with  the  rights  of  the  recipients,  let  us  see 
whether  it  is  capable  of  justification  for  reasons  of  social 
welfare.  Would  its  suppression  be  socially  beneficial  or 
socially  detrimental? 

The  Value  of  Capital  in  a  No-Interest  Regime 

The  interest  that  we  have  in  mind  is  pure  interest,  not 
undertaker's  profit,  nor  insurance  against  risk,  nor  gross 
interest.  Even  if  all  pure  interest  were  abolished  the 
capitalist  who  loaned  his  money  would  still  receive  some- 
thing from  the  borrower  in  addition  to  the  repayment  of 
the  principal,  while  the  active  capitalist  would  get  from 
the  consumer  more  than  the  expenses  of  production.  The 
former  would  require  a  premium  of,  say,  one  or  two  per 
cent,  to  protect  him  against  the  loss  of  his  loan.  The 
latter  would  demand  the  same  kind  of  insurance,  and  an 
additional  sum  to  repay  him  for  his  labour  and  enterprise. 
None  of  these  payments  could  be  avoided  in  any  system 
of  privately  directed  production.  The  return  whose  sup- 
pression is  considered  here  is  that  which  the  capitalist 
receives  over  and  above  these  payments,  and  which  in  this 
country  seems  to  be  about  three  or  four  per  cent. 

Would  capital  still  have  value  in  a  no-interest  regime, 
and  if  so  how  would  its  value  be  determined?  At  present 
the  lower  limit  of  the  value  of  productive  capital,  as  of 


SOCIAL  AND   PRESUMPTIVE   JUSTIFICATIONS  1 89 

all  Other  artificial  goods,  is  fixed  in  the  long  run  by  the 
cost  of  production.  Capital  instruments  that  do  not  bring 
this  price  will  not  continue  to  be  made.  In  other  words, 
cost  of  production  is  the  governing  factor  of  the  value 
of  capital  from  the  side  of  supply.  It  would  likewise  fix 
the  lower  limit  of  value  in  a  no-interest  regime;  only,  the 
cost  of  producing  capital  instruments  would  then  be  some- 
what lower  than  to-day,  owing  to  the  absence  of  an  interest 
charge  for  the  working  capital  during  the  productive 
process. 

But  the  cost  of  production  is  not  a  constant  and  accurate 
measure  of  the  value  of  artificial  capital.  The  true 
measure  is  found  in  the  revenue  or  interest  that  a  given 
piece  of  capital  yields  to  its  owners.  If  the  current  rate 
of  interest  is  five  per  cent.,  a  factory  that  brings  in  ten 
thousand  dollars  net  return  will  have  a  value  of  about 
two  hundred  thousand  dollars.  This  is  the  governing 
factor  of  value  from  the  side  of  demand.  In  a  no-interest 
economy  the  demand  factor  would  be  quite  different. 
Capital  instruments  would  be  in  demand,  not  as  revenue 
producers,  but  as  the  concrete  embodiments,  the  indis- 
pensable requisites  of  saving  and  accumulation.  For  it 
is  impossible  that  saving  should  in  any  considerable 
amount  take  the  form  of  cash  hoards.  In  the  words  of 
Sir  Robert  Giffen :  "  The  accumulations  of  a  single  year, 
even  taking  it  at  one  hundred  and  fifty  millions  only,  .  .  . 
would  absorb  more  than  the  entire  metallic  currency  of 
the  country  [Great  Britain].  They  cannot,  therefore,  be 
made  in  cash."  ^  The  instruments  of  production  would 
be  sought  and  valued  by  savers  for  the  same  reason  that 
safes  and  safety  deposit  boxes  are  in  demand  now.  They 
would  be  the  only  means  of  carrying  savings  into  the 
future,  and  they  would  necessarily  bring  a  price  sufficiently 
high  to  cover  the  cost  of  producing  them.  One  man 
might  deposit  his  savings  in  a  bank,  whence  they  would 

1 "  Growth  of  Capital,"  p.  152. 


IQO  DISTRIBUTIVE   JUSTICE 

be  borrowed  without  interest  by  some  director  of  indus- 
try. When  the  owner  of  the  savings  desired  to  recover 
them  he  could  obtain  from  the  bank  the  fund  of  some 
other  depositor,  or  get  the  proceeds  of  the  sale  of  the  con- 
crete capital  in  which  his  own  savings  had  been  embodied. 
Another  man  might  prefer  to  invest  his  savings  directly 
in  a  building,  a  machine,  or  a  mercantile  business,  whence 
he  could  recover  them  later  from  the  sale  of  the  property. 
Hence  the  absence  of  interest  would  not  change  essen- 
tially the  processes  of  saving  or  investment.  Capital 
would  still  have  value,  but  its  valuation  from  the  demand 
side  would  rest  on  a  different  basis.  It  would  be  valued 
not  in  proportion  to  its  power  to  yield  interest,  but  be- 
cause of  its  capacity  to  become  a  receptacle  for  savings, 
and  to  carry  into  the  future  the  consuming  power  of  the 
present. 

The  question  whether  the  abolition  of  interest  by  the 
State  would  be  socially  helpful  or  socially  harmful  is 
mainly,  though  not  entirely,  a  question  of  the  supply  of 
capital.  If  the  community  would  not  have  sufficient  cap- 
ital to  provide  for  all  its  needs,  actual  and  progressive,  the 
suppression  of  interest  would  obviously  be  a  bad  policy. 
Most  economists  seem  inclined  to  think  that  this  condi- 
tion would  be  realised;  that,  without  the  inducement  of 
interest,  men  would  neither  make  new  savings  nor  con- 
serve existing  capital  in  sufficient  quantity  to  supply  the 
wants  of  society.  Very  few  of  them,  however,  pretend 
to  be  able  to  prove  this  proposition.  So  many  complex 
factors  with  regard  to  the  possibilities  of  saving  and  the 
motives  of  savers,  enter  into  the  situation  that  no  opinion 
on  the  subject  can  have  any  stronger  basis  than  prob- 
ability. As  a  preliminary  to  our  consideration  of  the 
question  of  abolition,  let  us  inquire  whether  there  exists 
any  definite  relation  between  the  present  supply  of  capital 
and  the  current  rate  of  interest. 


SOCIAL   AND   PRESUMPTIVE   JUSTIFICATIONS         IQI 

Whether  the  Present  Rate  of  Interest  Is  Necessary 

It  is  sometimes  contended  that  the  interest  rate  must 
be  kept  up  to  the  present  level  if  the  existing  supply  of 
capital  is  to  be  maintained.  The  underlying  assumption 
is  that  some  of  the  present  savers  would  discontinue  that 
function  at  any  lower  rate,  with  the  consequence  that  the 
supply  of  capital  would  fall  below  the  demand.  Owing 
to  this  excess  of  demand  over  supply,  the  rate  of  interest 
would  rise,  or  tend  to  rise,  to  the  former  level.  There- 
fore, the  rate  existing  at  any  given  time  is  the  socially 
necessary  rate.  The  rate  of  interest  is  said  to  be  anal- 
ogous to  the  rate  of  wages.  For  example;  of  ten  thou- 
sand men  receiving  five  dollars  a  day,  nine  thousand  may 
be  willing  to  work  for  four  dollars  rather  than  quit  their 
present  jobs.  But  the  other  thousand  set  their  minimum 
price  at  five  dollars.  If  the  wage  is  reduced  to  four  dol- 
lars these  men  will  get  employment  elsewhere,  thus  caus- 
ing such  an  excess  of  demand  over  supply  as  to  force  the 
wage  rate  back  to  five  dollars.  The  same  thing,  it  is  con- 
tended, will  happen  when  the  high-priced  section  of  the 
savers,  "  the  marginal  savers,"  discontinue  saving  on 
account  of  the  artificial  lowering  of  the  rate  of  interest. 

The  analogy,  however,  is  misleading.  The  "  marginal  " 
one  thousand  wage  earners  refuse  to  work  for  four  dollars 
a  day  because  they  can  get  better  compensation  in  some 
other  occupation.  This  phenomenon  has  been  proved 
over  and  over  again  by  observation  and  experience.  On 
the  other  hand,  there  is  no  experience,  no  positive  evi- 
dence, which  shows  or  tends  to  show  that  any  necessary 
group  of  present  savers  would  discontinue  or  materially 
reduce  their  accumulations  if  they  were  no  longer  able 
to  secure  the  present  rate  of  interest.  If  the  rate  were 
lowered  simultaneously  in  all  civilised  countries  the  dis- 
satisfied savers,  unlike  the  dissatisfied  labourers,  would  not 
be  able  to  get  a  better  price  for  their  capital  elsewhere. 


192  DISTRIBUTIVE   JUSTICE 

Their  only  alternative  would  be  to  spend  their  actual  or 
potential  savings  for  present  enjoyment.  Now  we  have 
no  empirical  data  to  justify  the  assumption  that  any  con- 
siderable number  of  savers  would  choose  this  alternative 
in  preference  to,  say,  three  or  two  per  cent,  interest.  The 
fact  that  any  group  of  savers  at  present  gets  and  insists 
on  getting  a  higner  rate,  merely  proves  that  they  can  get 
it,  and  that  they  are  selfish  enough  to  take  advantage  of 
the  possibility.  We  know  that  some  men  who  now  obtain 
six  per  cent,  interest  would  accept  two  rather  than  cease 
to  save;  yet  they  do  not  hesitate  to  demand  six  per  cent. 
So  far  as  we  know,  all  present  savers  might  take  the  same 
attitude.  At  any  rate,  we  can  not  conclude  that  they 
would  not  take  less  from  the  fact  that  they  now  get  more. 
Why  then  does  not  the  rate  of  interest  fall  ?  If  all  present 
savers  are  getting  a  higher  rate  than  is  necessary  to  induce 
them  to  save,  why  do  they  not  increase  their  savings  to 
such  an  extent  that  the  supply  of  capital  will  exceed  the 
present  volume  of  demand,  and  thus  lead  to  a  declme  in 
the  rate  of  interest?  This  is  what  happens  when  the  price 
of  consumption-goods  rises  appreciably  above  the  mini- 
mum level  that  satisfies  the  most  high-priced  or  "  mar- 
ginal "  producers.  There  is,  however,  an  important 
difference  between  the  two  cases.  The  capacity  to  pro- 
duce more  goods  is  practically  unlimited,  and  the  corre- 
sponding desire  is  also  unHmited,  so  long  as  the  price  of 
the  product  exceeds  the  cost  of  production.  The  capacity 
to  save  is  not  unlimited,  and  the  desire  to  save  is  neu- 
tralised and  sharply  restricted  by  other  and  more  powerful 
desires.  Hence  it  is  quite  possible  that  the  price  of 
capital,  i.e.,  interest,  is  determined  to  only  a  slight  degree 
by  the  "  cost "  of  saving,  being  mainly  dominated  and 
regulated  from  the  side  of  demand. 

Even  though  many  of  the  present  savers  and  owners 
of  capital  should  diminish  or  discontinue  their  functions 
on  account  of  a  fall  in  the  rate  of  interest,  a  reduction 


SOCIAL   AND   PRESUMPTIVE   JUSTIFICATIONS         I93 

would  not  necessarily  take  place  in  the  supply  of  capital. 
The  function  of  these  "  marginal  savers "  would  in  all 
probability  be  performed  by  other  persons,  who  would  be 
compelled  to  increase  their  accumulations  in  order  to  pro- 
vide as  well  for  the  future  as  they  had  previously  been 
able  to  provide  with  a  smaller  capital  at  a  higher  rate  of 
interest/ 

Whether  at  Least  Two  Per  Cent.  Is  Necessary 

While  admitting  that  the  present  rate  is  unnecessarily 
high,  Professor  Cassel  maintains  that  a  certain  important 
class  of  savers  would  diminish  very  considerably  their 
accumulations  if  the  interest  rate  should  fall  much  below 
two  per  cent.  This  class  comprises  those  persons  whose 
main  object  in  saving  is  a  fund  which  will  some  day  sup- 
port them  from  its  interest.  At  six  per  cent,  a  person 
can  accumulate  in  about  twelve  years  a  sum  sufficient  to 
provide  him  with  an  interest-income  equal  to  the  amount 
annually  saved.  For  example;  two  thousand  dollars  put 
aside  every  year,  and  subjected  to  compound  interest,  will 
aggregate  in  twelve  years  a  principal  capable  of  yielding 
an  annual  income  of  two  thousand  dollars.  At  two  per 
cent,  the  same  amount  of  yearly  saving  will  not  lead  to 
the  same  income  in  less  than  thirty-five  years.  If  the 
rate  be  one  and  one-half  per  cent.,  forty-seven  years  will 
be  required  to  produce  the  desired  income.  Hence,  con- 
cludes Cassel,  if  the  rate  falls  below  two  per  cent,  the 
average  man  will  decide  that  life  is  too  short  to  provide 
for  the  future  by  means  of  an  interest-income,  and  will 
expect  to  draw  upon  his  principal.  This  means  that  he 
will  not  need  to  save  as  much  as  when  he  sought  to  ac- 
cumulate a  capital  large  enough  to  support  him  out  of  its 
interest  alone. 

The  argument  is  plausible  but  not  conclusive.     If  the 

1  Cf .  Conner,  "  Interest  and  Saving,"  p.  72  '<  Cassel,  "  The  Nature 
and  Necessity  of  Interest,"  ch.  iv. 


194  DISTRIBUTIVE   JUSTICE 

rate  of  interest  is  so  low  that  a  man  must  save  for  forty- 
seven  years  in  order  to  obtain  a  sufficient  interest-income 
to  support  him  in  his  decHning  years,  he  will  rarely  attain 
that  end.  In  the  great  majority  of  instances  men  who  are 
unable  to  save  more  annually  than  the  amount  that  they 
will  need  each  year  in  old  age,  will  expect  and  be  com- 
pelled to  use  up  a  part  or  all  of  their  capital  in  the  period 
following  the  cessation  of  their  economic  usefulness. 
Nevertheless,  it  does  not  follow  that  they  will  save  less 
at  one  and  one-half  per  cent,  than  at  six  per  cent.  The 
determining  factpr  in  the  situation  is  the  attitude  of  the 
saver  toward  the  capital  sum  accumulated.  He  either  de- 
sires or  does  not  desire  to  leave  this  behind  him.  In  the 
latter  case  he  will  save  only  as  much  as  is  necessary  to 
provide  an  annual  income  composed  partly  of  interest  *and 
partly  of  the-  principal.  If  this  contemplated  income  is 
two  thousand  dollars,  and  the  rate  of  interest  is  six  per 
cent.,  he  will  not  need  to  save  that*  much  annually  for  as 
long  a  period  as  ten  years.  He  can  diminish  either  the 
yearly  amount  saved  or  the  length  of  time  devoted  to  sav- 
ing. On  the  other  hand,  if  the  rate  is  only  one  and  one- 
half  per  cent,  he  will  be  compelled  to  save  a  larger  total 
in  order  to  secure  an  equal  accumulation  and  an  equal 
provision  for  the  future.  In  all  cases,  therefore,  in  which 
the  saving  is  carried  on  merely  for  the  saver's  own  life- 
time it  will  be  increased  instead  of  decreased  by  a  low 
rate  of  interest. 

If  the  saver  does  desire  to  bequeath  his  capital  he  will 
not  always  be  deterred  from  this  purpose  merely  because 
he  is  compelled  to  use  some  of  the  capital  for  the  satis- 
faction of  his  own  wants.  Take  the  man  who  can  save 
two  thousand  dollars  a  year,  and  with  the  rate  of  interest 
at  six  per  cent,  assure  himself  an  interest-income  of  the 
same  amount,  and  who  intends  to  leave  the  principal 
(some  thirty-three  thousand  dollars)  to  his  children. 
Should  the  rate  fall  to  one  and  one-half  per  cent,  he  would 


SOCIAL  AND   PRESUMPTIVE   JUSTIFICATIONS  I95 

be  unable  to  accumulate  and  bequeath  nearly  such  a  large 
sum.  Surely  this  fact,  discouraging  as  it  is,  will  not  de- 
termine him  to  save  nothing.  He  will  not,  as  Cassel's 
argument  assumes,  decide  to  leave  nothing  to  his  children, 
and  content  himself  with  that  amount  of  saving  which 
will  suffice  to  provide  for  his  own  future.  In  all  prob- 
ability he  will  try  to  accumulate  a  sum  which,  even  when 
diminished  by  future  deductions  for  his  own  wants,  will 
approximate  as  closely  as  possible  the  amount  that  he 
could  have  bequeathed  had  the  rate  remained  at  six  per 
cent.  This  means  that  he  will  save  more  at  the  low  than 
at  the  high  rate  of  interest. 

The  relative  insignificance  of  the  sum  which  would  be 
saved  at  a  low  rate  might  sometimes,  indeed,  deter  a 
person  from  saving  for  testamentary  purposes.  With  the 
rate  at  six  per  cent.,  a  man  might  be  willing  to  save  six 
hundred  dollars  a  year  for  a  sufficiently  long  period  to 
provide  a  legacy  of  twenty  thousand  dollars  to  an  educa- 
tional institution.  With  the  rate  at  one  and  one-half  per 
cent.,  the  amount  that  he  could  hope  to  accumulate  would 
be  so  much  smaller  that  it  might  seem  to  him  not  worth 
while,  and  he  would  decline  to  save  the  six  hundred  dol- 
lars annually.  Cases  of  this  kind,  however,  always  in- 
volve the  secondary  objects  of  saving,  the  luxuries  rather 
than  the  necessaries  of  testamentary  transmission.  They 
do  not  include  such  primary  objects  as  provision  for  one's 
family.  When  the  average  man  finds  that  he  cannot  leave 
to  his  family  as  much  as  he  would  desire,  as  much  as  he 
would  have  bequeathed  to  them  at  a  higher  rate  of  interest, 
he  will  strive  to  increase  rather  than  decrease  his  efforts 
to  save  for  this  purpose. 

Speaking  generally,  then,  we  conclude  that  the  assump- 
tion underlying  Professor  Cassel's  theory  is  contradicted 
by  our  experience  of  human  motives  and  practices.  Men 
who  save  mainly  for  a  future  interest-income,  at  the  same 
time  wishing  to  keep  the  principal  intact  until  death,  and 


196  DISTRIBUTIVE  JUSTICE 

who  could  have  fully  realised  this  desire  under  a  high 
interest  regime,  will  not  become  entirely  indifferent  to  it 
when  they  find  that  they  cannot  attain  it  completely. 
They  will  ordinarily  try  to  leave  behind  them  as  large  a 
capital  or  principal  as  they  can.  Hence  they  will  save 
more  rather  than  less. 

Whether  ^Any  Interest  Is  Necessary 

Perhaps  the  best  known  recent  statement  of  the  opinion 
that  interest  is  inevitable,  appears  in  Professor  Irving 
Fisher's  "  The  Rate  of  Interest."  ^  While  he  does  not 
assert  explicitly  that  sufficient  capital  would  not  be  pro- 
vided without  interest,  and  even  admits  that  in  certain 
circumstances  interest  might  disappear,  the  general  logic 
and  implications  of  his  argument  are  decidedly  against 
the  supposition  that  society  could  ever  get  along  without 
interest.  He  lays  such  stress  upon  the  factor  of  "  impa- 
tience," i.e.,  man's  unwillingness  to  wait  for  future  goods, 
as  to  suggest  strongly  that  other  causes  of  interest,  and 
the  number  of  savers  free  from  "  impatience,"  are  quite 
insignificant.  Now,  if  "  impatience  "  were  the  only  cause 
of  interest  the  latter  must  continue  as  long  as  "  impa- 
tience"  continues;  and  if  practically  all  savers,  actual  and 
possible,  are  completely  dominated  by  "  impatience  "  the 
abolition  of  interest  would  be  socially  disastrous.  How- 
ever, neither  of  these  assumptions  is  demonstrable.  We 
have  just  seen  that  the  present  rate  of  interest  has  other 
causes  than  "  impatience " ;  that  a  large  proportion  of 
savers  insist  upon  getting  the  present  rate,  not  because 
they  require  it  to  offset  their  "  impatience,"  but  simply 
because  they  can  obtain  it,  and  because  they  prefer  it  to 
the  lower  rate.  Therefore,  the  mere  existence  of  the 
present  rate  does  not  prove  it  to  be  necessary.  By  the 
same  argument  it  is  evident  that  the  existence  of  any 
interest  does  not  demonstrate  the  necessity  of  some  inter- 

1  New  York,  1907. 


SOCIAL   AND   PRESUMPTIVE   JUSTIFICATIONS  I97 

est.  In  the  second  place,  the  number  of  savers,  present 
and  prospective,  whose  "  impatience "  is  so  weak  as  to 
permit  them  to  save  without  interest,  is  probably  greater 
than  the  average  reader  of  Professor  Fisher's  pages  is  led 
to  assume.  The  question  whether  interest  is  necessary 
cannot  be  answered  by  reference  to  the  general  fact  of 
human  "  impatience  " ;  it  demands  a  preliminary  analysis 
of  the  extent  to  which  "  impatience  "  affects  the  different 
classes  of  savers. 

With  interest  abolished,  those  persons  who  were  willing 
to  subordinate  present  secondary  satisfactions  to  the  pri- 
mary future  needs  of  themselves  and  their  families,  would 
save  at  least  as  much  for  these  purposes  as  when  they 
could  have  obtained  interest.  Most  of  them  would  prob- 
ably save  more  in  order  to  render  their  future  provision 
as  nearly  as  possible  equal  to  what  it  would  have  been  had 
interest  accrued  on  their  annual  savings.  Whether  a 
person  intended  to  leave  all  his  accumulations,  or  part  of 
them,  or  none  of  them  to  posterity,  he  would  still  desire 
them  to  be  as  large  as  they  might  have  been  in  a  regime 
of  interest.  In  order  to  realise  this  desire,  he  would  be 
compelled  to  increase  his  savings.  And  it  is  reasonable 
to  expect  that  this  is  precisely  the  course  that  would  be 
followed  by  men  of  average  thrift  and  foresight.  Such 
men  regard  future  necessaries  and  comforts,  whether  for 
themselves  or  their  children,  as  more  important  than  pres- 
ent non-essentials  and  luxuries.  Interest  or  no  interest, 
prudent  men  will  subordinate  the  latter  goods  to  the 
former,  and  will  save  money  accordingly. 

When,  however,  both  future  and  present  goods  are  of 
the  same  order  and  importance,  the  future  is  no  longer 
preferred  to  the  present.  In  that  case  the  preference  is 
reversed.  The  luxuries  of  to-day  are  more  keenly  prized 
than  the  luxuries  of  to-morrow.  If  the  latter  are  to  be 
preferred  they  must  possess  some  advantage  over  the 
luxuries  that  might  be  obtained  here  and  now.     Such  ad- 


198  DISTRIBUTIVE   JUSTICE 

vantage  may  arise  In  various  ways;  for  example,  when  a 
man  decides  that  he  will  have  more  leisure  for  a  foreign 
journey  two  years  hence  than  this  year,  or  when  he  prefers 
a  large  amount  of  future  enjoyment  at  one  time  to  present 
satisfactions  taken  in  small  doses.  But  the  most  general 
method  of  conferring  advantage  upon  the  secondary  satis- 
factions of  the  future  as  compared  with  those  of  the 
present,  is  to  increase  the  quantity.  The  majority  of  fore- 
seeing persons  are  willing  to  pass  by  one  hundred  dollars' 
worth  of  enjoyment  now  for  the  sake  of  one  hundred  and 
five  dollars'  worth  one  year  hence.  This  advantage  of 
quantity  is  provided  through  the  receipt  of  interest.  It 
affects  all  those  persons  whose  saving,  as  noted  in  the  last 
chapter,  involves  a  sacrifice  for  which  the  only  adequate 
compensation  is  interest,  and  likewise  all  those  persons 
who  are  in  a  position  to  choose  between  present  and  future 
luxuries.  Were  interest  suppressed  these  classes  of  per- 
sons would  cease  to  save  for  this  kind  of  future  goods. 

According  to  Professor  Taussig,  "  most  saving  is  done 
by  the  well-to-do  and  the  rich."  ^  On  this  hypothesis  it 
seems  probable  that  the  abolition  of  interest  would  dimin- 
ish the  savings  and  capital  of  the  community  very  con- 
siderably; for  the  accumulations  of  the  wealthy  are 
derived  mainly  from  interest  rather  than  from  salaries. 
On  the  other  hand,  the  suppression  of  interest  should 
bring  about  a  much  wider  diffusion  of  wealth.  The  sums 
formerly  paid  out  as  interest,  would  be  distributed  among 
the  masses  of  the  population  as  increased  wages  and  re- 
duced costs  of  living.  Hence  the  masses  would  possess 
an  immensely  increased  capacity  for  saving,  which  might 
offset  or  even  exceed  the  loss  of  saving-power  among  those 
who  now  receive  interest-incomes.^ 

To  sum  up  the  results  of  our  inquiry  concerning  the 
necessity  of   interest:   The   fact  that   men   now   receive 

1 "  Principles  of  Economics,"  II,  42. 

2  Cf.  Hobson,  "  The  Economics  of  Distribution,"  pp.  259-265. 


SOCIAL  AND   PRESUMPTIVE   JUSTIFICATIONS  IQQ 

interest  does  not  prove  that  they  would  not  save  without 
interest.  The  fact  that  many  men  would  certainly  save 
without  interest  does  not  prove  that  a  sufficient  amount 
would  be  saved  to  provide  the  community  with  the  neces- 
sary supply  of  capital.  Whether  the  savings  of  those 
classes  that  increased  their  accumulations  would  counter- 
act the  decreases  in  the  saving  of  the  richer  classes,  is  a 
question  that  admits  of  no  definite  or  confident  answer. 

The  State  Is  Justified  in  Permitting  Interest 

If  we  assume  that  the  suppression  of  interest  would 
cause  a  considerable  decline  in  saving  and  capital,  we  must 
conclude  that  the  community  would  be  worse  off  than 
under  the  present  system.  To  diminish  greatly  the  in- 
struments of  production,  and  consequently  the  supply  of 
goods  for  consumption,  would  create  far  more  hardship 
than  it  would  relieve.  While  "  workless  "  incomes  would 
be  suppressed,  and  personal  incomes  more  nearly  equalised, 
the  total  amount  available  for  distribution  would  probably 
be  so  much  smaller  as  to  cause  a  deterioration  in  the  con- 
dition of  every  class.  In  this  hypothesis  the  State  would 
do  wrong  to  abolish  the  system  of  interest. 

If,  however,  we  assume  that  no  considerable  amount 
of  evil  would  follow,  or  that  the  balance  of  results  would 
be  favourable,  the  question  of  the  proper  action  of  the 
State  becomes  somewhat  complex.  In  the  first  place,  in- 
terest could  not  rightfully  be  suppressed  while  the  private 
taking  of  rent  remained.  To  adopt  such  a  course  would 
be  to  treat  the  receivers  of  property  incomes  inequitably. 
Landowners  would  continue  to  receive  an  income  from 
their  property,  while  capital  owners  would  not;  yet  the 
moral  claims  of  the  former  to  income  are  no  better  than 
those  of  the  latter.  In  the  second  place,  the  State  would 
be  obliged  to  compensate  the  owners  of  existing  capital 
instruments  for  the  decline  in  value  which,  as  we  have 
already  seen,  would  occur  when  the  item  of  interest  was 


200  DISTRIBUTIVE  JUSTICE 

eliminated  from  the  cost  of  reproducing  such  capital  in- 
struments. It  would  likewise  be  under  moral  obligation 
to  compensate  landowners  for  whatever  decrease  in  value 
befell  their  property  as  a  result  of  the  abolition  of  rent. 

Nevertheless,  the  practical  difficulties  confronting  the 
legal  abolition  of  interest  are  apparently  so  great  as  to 
render  the  attempt  socially  unwise  and  futile.  In  order 
to  be  effective  the  prohibition  would  have  to  be  interna- 
tional. Were  it  enforced  in  only  one  or  in  a  few  coun- 
tries, these  would  suffer  far  more  through  the  flight  of 
capital  than  they  would  gain  through  the  abolition  of 
interest.  The  technical  obstacles  in  any  case  would  be 
well  nigh  insuperable.  If  the  attempt  were  made  to  sup- 
press interest  on  producing  capital,  as  well  as  on  loans, 
the  civil  authorities  would  be  unable  to  determine  with  any 
degree  of  precision  what  part  of  the  gross  returns  of  a 
business  was  pure  interest,  and  what  part  was  a  necessary 
compensation  for  risk  and  the  labour  of  management. 
Should  the  State  try  to  solve  this  problem  by  allowing 
the  directors  of  industry  varying  salaries  to  correspond 
with  their  comparative  degrees  of  efficiency,  and  different 
rates  of  insurance-payments  to  represent  the  different 
risks,  it  would  inevitably  make  some  allowances  so  low  as 
to  discourage  labour  and  enterprise,  and  others  so  high  as 
to  give  the  recipients  a  considerable  amount  of  pure  in- 
terest in  the  guise  of  profits  and  salaries.  Should  it  fix 
a  flat  rate  of  salaries  and  profits,  the  more  efficient  under- 
takers would  refuse  to  put  forth  their  best  efforts,  and 
the  more  perilous  enterprises  would  not  be  undertaken. 
The  supervision  of  expenses,  receipts,  and  other  details 
of  business  that  would  be  required  to  prevent  evasion  of 
the  law,  would  not  improbably  cost  more  than  the  total 
amount  now  paid  in  the  form  of  interest.  On  the  other 
hand,  if  the  method  of  suppression  were  confined  to  loans 
it  would  probably  prove  only  a  little  less  futile  than  the 
effort  to  abolish  interest  on  productive  capital.     The  great 


SOCIAL  AND   PRESUMPTIVE   JUSTIFICATIONS         201 

majority  of  those  who  were  prevented  from  lending  at 
interest  would  invest  their  money  in  stocks,  land,  build- 
ings, and  other  forms  of  productive  property.  Moreover, 
it  is  probable  that  a  large  volume  of  loans  would  be  made 
despite  the  prohibition.  In  the  Middle  Ages,  when  the 
amount  of  money  available  for  lending  was  comparatively 
small,  and  when  State  and  Church  and  public  opinion  were 
unanimous  in  favour  of  the  policy,  the  legal  prohibition 
of  loans  was  only  partially  effective.  Now  that  the  sup- 
ply of  and  the  demand  for  loans  have  enormously  in- 
creased, and  interest  is  not  definitely  disapproved  by  the 
Church  or  the  public,  a  similar  effort  by  the  State  would 
undoubtedly  prove  a  failure.  Even  if  it  were  entirely 
successful  it  would  only  decrease,  not  abolish,  interest  on 
productive  capital.* 

In  view  of  the  manifold  and  grave  uncertainties  of  the 
situation,  It  is  practically  certain  that  modern  States  are 
justified  In  permitting  interest. 

Civil  Authorisation  not  Sufficient  for  Individual 
Justification 

This  justification  of  the  attitude  of  the  State  does  not 
of  itself  demonstrate  that  the  capitalist  has  a  right  to 
accept  interest.  The  civil  law  tolerates  many  actions 
which  are  morally  wrong  in  the  individual;  for  example, 
the  payment  of  starvation  wages,  the  extortion  of  unjust 
prices,  and  the  traffic  in  immorality.  Obviously  legal 
toleration  does  not  per  se  nor  always  exonerate  the  indi- 
vidual offender.  How,  then,  shall  we  justify  the  indi- 
vidual receiver  of  interest? 

As  already  pointed  out  more  than  once,  those  persons 
who  would  not  save  without  interest  are  justified  on  the 
ground  of  sacrifice.     So  long  as  the  community  desires 

1  Cf.  Fisher,  "  Elementary  Principles  of  Economics,"  pp.  396,  397. 
However,  he  does  not  discuss  in  this  passage  the  possibility  of  sup- 
pressing interest  on  productive  capital  by  a  direct  method. 


202  DISTRIBUTIVE   JUSTICE 

their  savings,  and  is  willing  to  pay  interest  on  them,  the 
savers  may  take  interest  as  the  fair  equivalent  of  the  in- 
convenience that  they  undergo  in  performing  this  social 
service.  The  precise  problem  before  us,  then,  is  the  justi- 
fication of  those  savers  and  capitalists  who  do  not  need 
the  inducement  of  interest,  and  whose  functions  of  saving 
and  conserving  capital  are  sufficiently  compensa:ted  with- 
out interest. 

It  is  a  fact  that  the  civil  law  can  sometimes  create  moral 
rights  and  obligations.  For  example;  the  statute  requir- 
ing a  person  to  repair  losses  that  he  has  unintentionally 
inflicted  upon  his  neighbour  is  held  by  the  moral  theologians 
to  be  binding  in  conscience,  as  soon  as  the  matter  has  been 
adjudicated  by  the  court.  In  other  words,  this  civil  reg- 
ulation confers  on  the  injured  man  property  rights,  and 
imposes  on  the  morally  inculpable  injurer  property  obli- 
gations. The  civil  statutes  also  give  moral  validity  to  the 
title  of  prescription,  or  adverse  possession.  When  the 
alien  possessor  has  complied  with  the  legal  provisions  that 
apply,  he  has  a  moral  right  to  the  property,  even  though 
the  original  owner  should  assert  his  claim  at  a  later  time. 
Some  moral  theologians  maintain  that  a  legal  discharge 
in  bankruptcy  liberates  the  bankrupt  from  the  moral  obli- 
gation of  satisfying  his  unpaid  debts.  Several  other  situ- 
ations might  be  cited  in  which  the  State  admittedly  creates 
moral  rights  of  individual  ownership  which  would  have 
no  definite  existence  in  the  absence  of  such  legal  action 
and  authorisation.^ 

This  principle  would  seem  to  have  received  a  par- 
ticularly pertinent  application  for  our  inquiry  in  the  doc- 
trine of  prcEmium  legale  as  a  title  of  interest  on  loans. 
In  the  "  Opus  Morale  "  of  Ballerini-Palmieri  can  be  found 
a  long  list  of  moral  theologians  living  in  the  seventeenth 
and  eighteenth  centuries  who  maintained  that  the  mere 
legal  sanction  of  a  certain  rate  of  interest  was  a  sufficient 

1  Cf.  Lehmkuhl,  "  Theologia  Moralis,"  I,  nos.  917,  965,  1035. 


SOCIAL  AND   PRESUMPTIVE   JUSTIFICATIONS         203 

moral  justification  for  the  lender.^  While  holding  to  the 
traditional  doctrine  that  interest  was  not  capable  of  being 
justified  on  intrinsic  grounds,  these  writers  contended  that 
by  virtue  of  its  power  of  eminent  domain  the  State  could 
transfer  from  the  borrower  to  the  lender  the  right  to  the 
interest  paid  on  a  loan.  They  did  not  mean  that  the  State 
could  arbitrarily  take  one  man's  property  and  hand  it  over 
to  another,  but  only  that,  when  it  sanctioned  interest  for 
the  public  welfare,  this  extrinsic  circumstance  (like  the 
other  "extrinsic  titles"  approved  by  moraHsts)  annulled 
the  claim  of  the  borrower  in  favour  of  the  lender.  In 
other  words,  they  maintained  that  the  money  paid  in  loan- 
interest  did  not  belong  to  either  borrower  or  lender  with 
certainty  or  definiteness  until  the  matter  was  determined 
by  economic  conditions  and  extrinsic  circumstances. 
Hence  legal  authorisation  for  the  common  good  was 
morally  sufficient  to  award  it  to  the  lender.  More  than 
one  of  them  declared  that  the  State  had  the  same  right 
to  determine  this  indeterminate  property,  to  assign  the 
ownership  to  the  lender,  that  it  had  to  transfer  property 
titles  by  the  device  of  prescription.  And  their  general 
position  seems  to  have  been  confirmed  by  the  response  of 
the  Congregation  of  the  Poenitentiaria,  Feb.  ii,  1832,  to 
the  Bishop  of  Verona,  the  substance  of  which  was  that  a 
confessor  might  adopt  and  act  upon  this  position.^ 

And  yet,  neither  this  nor  any  of  the  other  precedents 
cited  above,  are  sufficient  to  give  certain  moral  sanction 
to  the  practice  of  interest-taking  by  those  persons  who 
would  continue  to  save  if  interest  were  abolished.  All 
the  acts  of  legal  authorisation  that  we  have  been  consider- 
ing relate  to  practices  which  are  beneficial  and  necessary 
to  society.  Only  in  such  cases  has  the  State  the  moral 
authority  to  create  or  annul  property  rights.  In  the 
seventeenth  and  eighteenth  centuries  the  legal  authorisa- 

1  Vol.  3,  pp.  617-629 ;  2d  ed. 

2  Ballerini-Palmieri,  loc.  cit. ;  cf .  Van  Roey,  op.  cit.,  pp.  73-75. 


204  DISTRIBUTIVE  JUSTICE 

tion  of  a  certain  rate  of  interest  made  that  rate  morally 
lawful  simply  because  this  legal  act  gave  formal  and  au- 
thoritative testimony  to  the  social  utility  of  interest- 
taking.  The  State  merely  declared  the  reasonableness, 
and  fixed  the  proper  limits  of  the  practice.  The  beneficent 
effect  of  interest-taking  upon  society  was  its  underlying 
justification,  was  the  ultimate  fact  which  made  it  reason- 
able, and  which  gave  to  the  action  of  the  State  moral  value. 
Had  the  taking  of  interest  on  loans  not  been  allowed  the 
bulk  of  possible  savings  would  either  not  have  been  saved  at 
all,  or  would  have  been  hoarded  instead  of  converted  into 
capital.  And  that  money  was  badly  needed  in  the  com- 
mercial and  industrial  operations  of  the  time.  Hence  the 
owners  of  it  were  in  the  position  of  persons  who  regarded 
saving  and  investing  as  a  sacrifice  for  which  interest  was 
a  necessary  and  proper  compensation.  To-day,  however, 
there  are  millions  of  persons  who  would  continue  to  per- 
form both  these  functions  without  the  inducement  of 
interest.  Therefore,  the  public  good  does  not  require  that 
they  should  receive  interest,  nor  that  the  State  should  have 
the  power  to  clothe  their  interest-incomes  with  moral  law- 
fulness. Inasmuch  as  the  State  is  not  certain  that  the 
abolition  of  interest  would  be  socially  expedient  or  prac- 
tically possible,  it  is  justified  in  permitting  the  institution 
to  continue ;  but  it  has  no  power  to  affect  the  morality  of 
interest-taking  as  an  individual  action. 

How  the  Interest-Taker  Is  Justified 

Although  the  interest  received  by  the  non-sacrifice  savers 
is  not  clearly  justifiable  on  either  intrinsic  or  social 
grounds,  it  is  not  utterly  lacking  in  moral  sanctions.  In 
the  first  place,  we  have  not  contended  that  the  intrinsic 
factors  of  productivity  and  service  are  certainly  invalid 
morally.  We  have  merely  insisted  that  the  moral  worth 
of  these  titles  has  never  been  satisfactorily  demonstrated.] 
Possibly  they  have  a  greater  and  more  definite  efficacy] 


SOCIAL  AND   PRESUMPTIVE   JUSTIFICATIONS         20$ 

than  has  yet  been  shown  by  their  advocates.  In  more 
concrete  terms,  we  admit  that  the  productivity  of  capital 
and  the  service  of  the  capitalist  to  the  community,  are  pos- 
sible and  doubtful  titles  to  interest.  A  doubtful  title  to 
property  is,  indeed,  insufficient  by  itself.  In  the  case  of 
the  interest  receiver,  however,  the  doubtful  titles  of  pro- 
ductivity and  service  are  reinforced  by  the  fact  of  posses- 
sion. Thus  supplemented,  they  are  sufficient  to  justify 
the  non-sacrifice  saver  in  giving  himself  the  benefit  of  the 
doubt  as  regards  the  validity  of  his  right  to  take  interest. 
To  be  sure,  this  indefinite  and  uncertain  claim  would  be 
overthrown  by  a  more  definite  and  positive  title.  But  no 
such  antagonistic  title  exists.  Neither  the  consumer  nor 
the  labourer  can  show  any  conclusive  reason  why  interest 
should  go  to  him  rather  than  to  the  capitalist.  Hence  the 
latter  has  at  least  a  presumptive  title.  In  the  circum- 
stances this  is  morally  sufficient. 

To  this  justification  by  presumption  must  be  added  a 
justification  by  analogy.  The  non-sacrifice  savers  seem  to 
be  in  about  the  same  position  as  those  other  agents  of 
production  whose  rewards  are  out  of  proportion  to  their 
sacrifices.  For  example;  the  labourer  of  superior  native 
ability  gets  as  much  compensation  for  the  same  quality 
and  quantity  of  work  as  his  companion  who  has  only  ordi- 
nary ability;  and  the  exceptionally  intelligent  business  man 
stands  in  the  same  relation  to  his  less  efficient  competitor ; 
yet  the  sacrifices  undergone  by  the  former  of  each  pair  is 
less  than  that  suffered  by  the  latter.  It  would  seem  that 
if  the  more  efficient  men  may  properly  take  the  same  re- 
wards as  those  who  make  larger  sacrifices,  the  non-sacri- 
fice capitalist  might  lawfully  accept  the  same  interest  as 
the  man  whose  saving  involves  some  sacrifice.  On  this 
principle  the  lenders  who  would  not  have  invested  their 
money  in  a  productive  enterprise  were  nevertheless  per- 
mitted by  the  moralists  of  the  post-mediaeval  period  to 
take  advantage  of  the  title  of  lucrum  cessans.     Although 


206  DISTRIBUTIVE   JUSTICE 

they  had  relinquished  no  opportunity  of  gain,  nor  made 
any  sacrifice,  they  were  put  on  the  same  moral  level  as 
sacrificing  lenders,  and  were  allowed  to  take  the  same 
interest. 

As  a  determinant  of  ownership,  possession  is  the  fee- 
blest of  all  factors,  and  yet  it  is  of  considerable  importance 
for  a  large  proportion  of  incomes  and  property.  In  the 
distribution  of  the  national  product,  as  well  as  in  the  di- 
vision of  the  original  heritage  of  the  earth,  a  large  part 
is  played  by  the  title  of  first  occupancy.  Much  of  the 
product  of  industry  is  assigned  to  the  agents  of  production 
mainly  on  the  basis  of  inculpable  possession.  That  is;  it 
goes  to  its  receivers  automatically,  in  exchange  for  bene- 
fits to  those  who  hand  it  over,  and  without  excessive 
exploitation  of  their  needs.  Just  as  the  first  arrival  on  a 
piece  of  land  may  regard  it  as  a  no-man's  territory,  and 
make  it  his  own  by  the  mere  device  of  appropriation,  so 
the  capitalist  may  get  morally  valid  possession  of  interest. 
Sometimes,  indeed,  this  debatable  share,  this  no-man's 
share  of  the  product  of  industry,  is  secured  in  some  part 
by  the  consumer  of  the  labourer.  In  such  cases  their  title 
to  it  is  just  as  valid  as  the  title  of  the  capitalist,  notwith- 
standing the  doubtful  titles  of  productivity  and  service 
which  the  latter  has  in  his  favour.  First  occupancy  and 
possession  are  the  more  decisive  factors.  In  the  great  ma- 
jority of  instances,  however,  the  capitalist  is  the  first 
occupant,  and  therefore  the  lawful  possessor  of  the 
interest-share. 

The  general  justification  of  interest  set  forth  in  the 
immediately  preceding  paragraphs  is  supplemented  in  the 
case  of  the  great  majority  of  capital  owners  by  the  fact 
that  their  income  from  this  source  is  relatively  insig- 
nificant. The  average  income  of  the  farmers  of  the 
United  States  is  only  724  dollars  per  year,  and  of  this 
322  dollars  is  interest  on  the  capital  invested  in  the  farm.^ 
iCf.  American  Economic  Review,  March,  igi6;  p.  46. 


SOCIAL   AND   PRESUMPTIVE   JUSTIFICATIONS         207 

Even  when  we  make  due  allowance  for  the  high  purchas- 
ing power  of  farm  incomes,  due  to  the  lower  cost  of 
foodstuffs  and  house  rent,  the  total  amount  of  724  dollars 
provides  only  a  very  moderate  living.  Consequently  the 
great  majority  of  farmers  can  regard  the  interest  that  they 
receive  as  a  necessary  part  of  the  remuneration  that  is 
fairly  due  them  on  account  of  their  labour,  sacrifices,  and 
risks.  So  far  as  they  are  concerned,  the  justification  of 
interest,  as  interest,  is  not  a  practical  question.  The  same 
observation  applies  to  the  majority  of  urban  business  men, 
such  as  small  merchants  and  manufacturers.  Their  inter- 
est can  be  justified  as  not  more  than  fair  wages  and 
profits. 

Again,  there  is  a  large  number  of  interest  receivers 
who  are  entirely  dependent  upon  this  kind  of  income,  and 
who  obtain  therefrom  only  a  moderate  livelihood.  They 
are  mainly  children,  aged  persons,  and  invalids.  Unlike 
the  classes  just  described,  they  cannot  justify  their  interest 
as  a  fair  supplement  to  wages ;  however,  they  may  reason- 
ably claim  it  as  their  equitable  or  charitable  share  of  the 
common  heritage  of  the  earth.  If  they  did  not  receive 
this  interest-income  they  would  have  to  be  supported  by 
their  relatives  or  by  the  State.  For  many  reasons  this 
would  be  a  much  less  desirable  arrangement.  Conse- 
quently their  general  claim  to  interest  is  supplemented  by 
considerations  of  human  welfare. 

The  difference  between  the  ethical  character  of  the 
interest  discussed  in  the  last  two  paragraphs  and  of  that 
received  by  persons  who  possess  large  incomes,  is  too 
often  overlooked  in  technical  treatises.  Every  man  own- 
ing any  productive  goods  is  reckoned  as  a  capitalist,  and 
assumed  to  receive  interest.  If,  however,  a  man's  total 
interest-income  is  so  small  that  when  combined  with  all  his 
other  revenues  it  merely  completes  the  equivalent  of  a 
decent  living,  it  is  surely  of  very  little  significance  as 
interest.     It  stands  in  no  such  need  of  justification  as  the 


208  DISTRIBUTIVE   JUSTICE 

interest  obtained  by  men  whose  incomes  amount  to,  say, 
ten  thousand  dollars  a  year  and  upwards. 

Still  another  confirmatory  title  of  interest  is  suggested 
by  the  following  well  known  declaration  of  St.  Thomas 
Aquinas :  "  The  possession  of  riches  is  not  in  itself  unlaw- 
ful if  the  order  of  reason  be  observed :  that  a  man  should 
possess  justly  what  he  owns,  and  use  it  in  a  proper  manner 
for  himself  and  others."  ^  Neither  just  acquisition  nor 
proper  use  is  alone  sufficient  to  render  private  posses- 
sions morally  good.  Both  must  be  present.  As  we  have 
seen  above,  the  capitalist  can  appeal  to  certain  presumptive 
and  analogous  titles  which  justify  practically  his  acquisi- 
tion of  interest;  but  there  can  be  no  doubt  that  his  claim 
and  his  moral  power  of  disposal  are  considerably 
strengthened  when  he  puts  his  interest-income  to  a  proper 
use.  One  way  of  so  using  it  is  for  a  reasonable 
livelihood,  as  exemplified  in  the  case  of  the  farmers, 
business  men,  and  non-workers  whom  we  considered 
above.  Those  persons  who  receive  incomes  in  excess 
of  their  reasonable  needs  could  devote  the  surplus  to 
religion,  charity,  education,  and  a  great  variety  of  al- 
truistic purposes.  We  shall  deal  with  this  matter  spe- 
cifically in  the  chapter  on  the  "  Duty  of  Distributing 
Superfluous  Wealth."  In  the  meantime  it  is  sufficient  to 
note  that  the  rich  man  who  makes  a  benevolent  use  of  his 
interest-income  has  a  special  reason  for  believing  that  his 
receipt  of  interest  is  justified. 

The  decisive  value  attributed  to  presumption,  analogy, 
possession,  and  doubtful  titles  in  our  vindication  of  the 
capitalist's  claim  to  interest,  is  no  doubt  disappointing  to 
those  persons  who  desire  clear-cut  mathematical  rules  and 
principles.  Nevertheless,  they  are  the  only  factors  that 
seem  to  be  available.  While  the  title  that  they  confer  upon 
the  interest  receiver  is  not  as  definite  nor  as  noble  as  that 
by  which  the  labourer  claims  his  wages  or  the  business  man 

1 "  Contra  Gentiles,"  lib.  3,  c.  123. 


SOCIAL   AND   PRESUMPTIVE   JUSTIFICATIONS         209 

his  profits,  it  is  morally  sufficient.  It  will  remain  logically 
and  ethically  unshaken  until  more  cogent  arguments  have 
been  brought  against  it  than  have  yet  appeared  in  the 
denunciations  of  the  income  of  the  capitalist.  And  what 
is  true  of  him  is  likewise  true  of  the  rent  receiver,  and 
of  the  person  who  profits  by  the  "unearned  increment" 
of  land  values.  In  all  three  cases  the  presumptive  justi- 
fication of  "  workless "  incomes  will  probably  remain 
valid  as  long  as  the  present  industrial  system  endures. 


CHAPTER  XIV 

COOPERATION    AS   A    PARTIAL   SOLVENT   OF   CAPITALISM 

Interest  is  not  a  return  for  labour.  The  majority  of 
interest  receivers  are,  indeed,  regularly  engaged  at  some 
active  task,  whether  as  day  labourers,  salaried  employes, 
directors  of  industry,  or  members  of  the  professions ;  but 
for  these  services  they  obtain  specific  and  distinct  com- 
pensation. The  interest  that  they  get  comes  to  them 
solely  in  their  capacity  as  owners  of  capital,  independently 
of  any  personal  activity.  From  the  viewpoint  of  eco- 
nomic distribution,  interest  is  a  "  workless "  income. 
As  such,  it  seems  to  challenge  that  ethical  intuition  which 
connects  reward  with  effort  and  which  inclines  to  regard 
income  from  any  other  source  as  not  quite  normal. 
Moreover,  interest  absorbs  a  large  part  of  the  national 
income,  and  perpetuates  grave  economic  inequalities.* 

1  Professor  Scott  Nearing  estimates  the  annual  income  derived  from 
the  ownership  of  property  in  the  United  States ;  that  is,  land  and  all 
forms  of  capital,  at  from  six  to  nine  billion  dollars.  Professor  W.  I. 
King  gives  the  combined  shares  of  the  national  income  received  by  the 
landowners  and  the  capitalists  at  more  than  six  and  three-quarter 
billions  in  1910.  According  to  the  Census  Bulletin  on  the  "  Estimated 
Valuation  of  National  Wealth,"  the  capital  goods  of  the  country  were 
in  1912  approximately  $175,000,000,000.00.  At  four  per  cent,  this  would 
mean  an  annual  income  of  seven  billion  dollars.  The  lowest  of  the 
three  estimates,  six  billion  dollars,  is  equivalent  to  more  than  sixty 
dollars  a  year  for  every  man,  woman,  and  child  in  the  United  States, 
If  that  sum  were  equally  distributed  among  the  whole  population,  it 
would  mean  an  increase  of  between  forty  and  sixty  per  cent,  in  the 
income  of  the  majority  of  workingmen's  families !  Nor  do  present 
tendencies  hold  out  any  hope  of  an  automatic  reduction  of  the  interest- 
burden  in  the  future.  In  the  opinion  of  Professor  Scott  Nearing, 
"  the  present  economic  tendencies  will  greatly  increase  the  amount  of 
property  income  paid  with  each  passing  decade."    "  Income,"  p.  199 ; 

210 


COOPERATION    AS   A   PARTIAL  SOLVENT  211 

Nevertheless,  interest  cannot  be  wholly  abolished.  As 
long  as  capital  remains  in  private  hands,  its  owners  will 
demand  and  obtain  interest.  The  only  way  of  escape  is 
by  the  road  of  Socialism,  and  this  would  prove  a  blind 
alley.  As  we  have  seen  in  a  preceding  chapter,  Socialism 
is  ethically  and  economically  impossible. 

May  not  the  burdens  and  disadvantages  of  interest  be 
mitigated  or  minimised?  Such  a  result  could  conceivably 
be  reached  in  two  ways:  the  sum  total  of  interest  might 
be  reduced,  and  the  incomes  derived  from  interest  might  be 
more  widely  distributed. 

Reducing  the  Rate  of  Interest 

No  considerable  diminution  of  the  interest-volume  can 
be  expected  through  a  decline  in  the  interest  rate.  As  far 
back  as  the  middle  of  the  eighteenth  century,  England  and 
Holland  were  able  to  borrow  money  at  three  per  cent. 
During  the  period  that  has  since  intervened,  the  rate  has 
varied  from  three  to  six  per  cent,  on  this  class  of  loans. 
Between  1870  and  1890,  the  general  rate  of  interest  de- 
clined about  two  per  cent.,  but  it  has  risen  since  the  latter 
date  about  one  per  cent.  The  Great  War  now  (19 16)  in 
action  is  destroying  an  enormous  amount  of  capital,  and 
it  will,  as  in  the  case  of  all  previous  military  conflicts  of 
importance,  undoubtedly  be  followed  by  a  marked  rise  in 
the  rate  of  interest. 

On  the  other  hand,  the  only  definite  grounds  upon 
which  a  decline  in  the  rate  can  be  hoped  for  are  either 
uncertain  or  unimportant.  They  are  the  rapid  increase  of 
capital,  and  the  extension  of  government  ownership  and 
operation  of  natural  monopolies. 

New  York,  191 5.  See  especially^  ch.  vii.  According  to  Professor 
Taussig,  "  the  absolute  amount  of  income  going  to  this  [the  capitalist] 
class  tends  to  increase,  and  its  share  of  the  total  income  tends  also  to 
increase ;  whereas  for  the  labourers,  though  their  total  income  may  in- 
crease, their  share  of  income  of  society  as  a  whole  tends  to  decline." 
"  Principles  of  Economics,"  II,  205. 


212  DISTRIBUTIVE   JUSTICE 

The  first  is  uncertain  in  its  effects  upon  the  rate  of  in- 
terest because  the  increased  supply  of  capital  is  often 
neutralised  by  the  process  of  substitution.  That  is,  a  large 
part  of  the  new  capital  does  not  compete  with  and  bring 
down  the  price  of  the  old  capital.  Instead,  it  is  absorbed 
in  new  inventions,  new  types  of  machinery,  and  new 
processes  of  production,  all  of  which  take  the  place  of 
labour,  thus  tending  to  increase  rather  than  diminish  the 
demand  for  capital  and  the  rate  of  interest.  To  be  sure, 
the  demand  for  capital  thus  arising  has  not  always  been 
sufficient  to  offset  the  enlarged  supply.  Since  the  Indus- 
trial Revolution  capital  has  at  certain  periods  and  in  cer- 
tain regions  increased  so  rapidly  that  it  could  not  all  find 
employment  in  new  forms  and  in  old  forms  at  the  old 
rate.  In  some  instances  a  decline  in  the  rate  of  interest 
can  be  clearly  traced  to  the  disproportionately  quick 
growth  of  capital.  But  this  phenomenon  has  been  far 
from  uniform,  and  there  is  no  indication  that  it  will  be- 
come so  in  the  future.  The  possibilities  of  the  process  of 
substitution  have  been  by  no  means  exhausted. 

The  effects  of  government  ownership  are  even  more 
problematical.  States  and  cities  are,  indeed,  able  to  obtain 
capital  more  cheaply  than  private  corporations  for  such 
public  utilities  as  railways,  telegraphs,  tramways,  and 
street  lighting;  and  public  ownership  of  all  such  concerns 
will  probably  become  general  in  the  not  remote  future. 
Nevertheless  the  social  gain  is  not  likely  to  be  propor- 
tionate to  the  reduction  of  interest  on  this  section  of 
capital.  A  part,  possibly  a  considerable  part,  of  the  sav- 
ing in  interest  will  be  neutralised  by  the  lower  efficiency 
and  greater  cost  of  operation;  for  in  this  respect  publicly 
managed  are  inferior  to  privately  managed  enterprises. 
Consequently,  the  charges  to  the  public  for  the  services 
rendered  by  these  utilities  cannot  be  reduced  to  the  same 
degree  as  the  rate  of  interest  on  the  capital.  On  the  other 
hand,  the  exclusion  of  private  operating  capital  from  this 


CO-OPERATION   AS   A   PARTIAL   SOLVENT  213 

very  large  field  of  public  utilities  should  increase  competi- 
tion among  the  various  units  of  capital,  and  thus  bring 
down  its  rewards.  To  what  extent  this  would  happen 
cannot  be  estimated  even  approximately.  The  only  safe 
statement  is  that  the  decline  in  the  general  rate  of  interest 
would  probably  be  slight. 

Need  for  a  Wider  Distribution  of  Capital 

The  main  hope  of  lightening  the  social  burden  of  in- 
terest lies  in  the  possible  reduction  in  the  necessary  volume 
of  capital,  and  especially  in  a  wider  distribution  of  interest- 
incomes.  In  many  parts  of  the  industrial  field  there  is  a 
considerable  waste  of  capital  through  unnecessary  duplica- 
tion. This  means  that  a  large  amount  of  unnecessary 
interest  is  paid  by  the  consumer  in  the  form  of  unneces- 
sarily high  prices.  Again,  the  owners  of  capital  and  re- 
ceivers of  interest  constitute  only  a  minority  of  the  popu- 
lation of  all  countries,  with  the  possible  exception  of  the 
United  States.  The  great  majority  of  the  wage  earners 
in  all  lands  possess  no  capital,  and  obtain  no  interest.  Not 
only  are  their  incomes  small,  often  pitiably  small,  but  their 
lack  of  capital  deprives  them  of  the  security,  confidence, 
and  independence  which  are  required  for  comfortable 
existence  and  efficient  citizenship.  They  have  no  income 
from  productive  property  to  protect  them  against  the  ces- 
sation of  wages.  During  periods  of  unemployment  they 
are  frequently  compelled  to  have  recourse  to  charity,  and 
to  forego  many  of  the  necessary  comforts  of  life.  So  long 
as  the  bulk  of  the  means  of  production  remains  in  the  hands 
of  a  distinct  capitalist  class,  this  demoralising  insecurity 
of  the  workers  must  continue  as  an  essential  part  of  our 
industrial  system.  While  it  might  conceivably  be  elim- 
inated through  a  comprehensive  scheme  of  State  insur- 
ance, this  arrangement  would  substitute  dependence  upon 
the  State  for  dependence  upon  the  capitalist,  and  be  much 
less  desirable  than  ownership  of  income-bearing  property. 


214  DISTRIBUTIVE   JUSTICE 

The  workers  who  possess  no  capital  do  not  enjoy  a 
normal  and  reasonable  degree  of  independence,  self 
respect,  or  self  confidence.  They  have  not  sufficient  con- 
trol over  the  wage  contract  and  the  other  conditions  of 
employment,  and  they  have  nothing  at  all  to  say  concerning 
the  goods  that  they  shall  produce,  or  the  persons  to  whom 
their  product  shall  be  sold.  They  lack  the  incentive  to 
put  forth  their  best  efforts  in  production.  They  cannot 
satisfy  adequately  the  instinct  of  property,  the  desire  to 
control  some  of  the  determining  forms  of  material  pos- 
session. They  are  deprived  of  that  consciousness  of 
power  which  is  generated  exclusively  by  property,  and 
which  contributes  so  powerfully  toward  the  making  of  a 
contended  and  efficient  life.  They  do  not  possess  a  normal 
amount  of  freedom  in  politics,  nor  in  those  civic  and  social 
relations  which  lie  outside  the  spheres  of  industry  and 
politics.  In  a  word,  the  worker  without  capital  has  not 
sufficient  power  over  the  ordering  of  his  own  life. 

The  Essence  of  Co-operative  Enterprise 

The  most  effective  means  of  lessening  the  volume  of 
interest,  and  bringing  about  a  wider  distribution  of  capital, 
is  to  be  found  in  co-operative  enterprise.  Co-operation  in 
general  denotes  the  unified  action  of  a  group  of  persons 
for  a  common  end.  A  church,  a  debating  club,  a  joint 
stock  company,  exemplifies  co-operation  in  this  sense.  In 
the  strict  and  technical  sense,  it  has  received  various 
definitions.  Professor  Taussig  declares  that  it  "  consists 
essentially  in  getting  rid  of  the  managing  employer  " ;  but 
this  description  is  applicable  only  to  co-operatives  of  pro- 
duction. "  A  combination  of  individuals  to  economise 
by  buying  in  common,  or  increase  their  profits  by  selling 
in  common"  (Encyclopedia  Britannica)  is  likewise  too 
narrow,  since  it  fits  only  distributive  and  agricultural  co- 
operation. According  to  C.  R.  Fay,  a  co-operative  society 
is  "  an  association  for  the  purpose  of  joint  trading,  orig- 


CO-OPERATION   AS   A   PARTIAL   SOLVENT  21$ 

mating  among  the  weak,  and  conducted  always  in  an  un- 
selfish spirit."  If  the  word,  "trading"  be  stretched  to 
comprehend  manufacturing  as  well  as  commercial  activi- 
ties, Fay's  definition  is  fairly  satisfactory.  The  distin- 
guishing circumstance,  "  originating  among  the  weak,"  is 
also  emphasised  by  Father  Pesch  in  his  statement  that  the 
essence,  aim,  and  meaning  of  co-operation  are  to  be  found 
in  "  a  combination  of  the  economically  weak  in  common 
efforts  for  the  security  and  betterment  of  their  condi- 
tion." ^  In  order  to  give  the  proper  connotation  for  our 
purpose,  we  shall  define  co-operation  as,  that  joint  eco- 
nomic action  which  seeks  to  obtain  for  a  relatively  weak 
group  all  or  part  of  the  profits  and  interest  which  in  the 
ordinary  capitalist  enterprise  are  taken  by  a  smaller  and 
different  group.  This  formula  puts  in  the  foreground  the 
important  fact  that  in  every  form  of  co-operative  effort, 
some  interest  or  profits,  or  both,  are  diverted  from  those 
who  would  have  received  them  under  purely  capitalistic 
arrangements,  and  distributed  among  a  larger  number  of 
persons.  Thus  it  indicates  the  bearing  of  co-operation 
upon  the  problem  of  lightening  the  social  burden  of 
interest. 

From  the  viewpoint  of  economic  function,  co-operation 
may  be  divided  into  two  general  kinds,  producers'  and 
consumers'.  The  best  example  of  the  former  is  a  wage 
earners'  productive  society;  of  the  latter,  a  co-operative 
store.  Credit  co-operatives  and  agricultural  co-operatives 
fall  mainly  under  the  former  head,  inasmuch  as  their  prin- 
cipal object  is  to  assist  production,  and  to  benefit  men  as 
producers  rather  than  as  consumers.  Hence  from  the 
viewpoint  of  type,  co-operation  may  be  classified  as  credit, 
agricultural,  distributive,  and  productive. 

1 "  Lehrbuch  der  Nationaloekonomie,"  III,  517. 


2l6  DISTRIBUTIVE   JUSTICE 

Co-operative  Credit  Societies 

A  co-operative  credit  society  is  a  bank  controlled  by  the 
persons  who  patronise  it,  and  lending  on  personal  rather 
than  material  security.  Such  banks  are  intended  almost 
exclusively  for  the  relatively  helpless  borrower,  as,  the 
small  farmer,  artisan,  shopkeeper,  and  the  small  man  gen- 
erally. Fundamentally  they  are  associations  of  neigh- 
bours who  combine  their  resources  and  their  credit  in 
order  to  obtain  loans  on  better  terms  than  are  accorded  by 
the  ordinary  commercial  banks.  The  capital  is  derived 
partly  from  the  sale  of  shares  of  stock,  partly  from  de- 
posits, and  partly  from  borrowed  money.  In  Germany, 
where  credit  associations  have  been  more  widely  extended 
and  more  highly  developed  than  in  any  other  country,  they 
are  of  two  kinds,  named  after  their  respective  founders, 
Schulze-Delitzsch  and  Raiffeisen.  The  former  operates 
chiefly  in  the  cities,  serves  the  middle  classes  rather 
than  the  very  poor,  requires  all  its  members  to  subscribe 
for  capital  stock,  commits  them  to  a  long  course  of  saving, 
and  thus  develops  their  interest  as  lenders.  The  Raiffeisen 
societies  have,  as  a  rule,  very  little  share  capital,  exist 
chiefly  in  the  country  districts,  especially  among  the  poorest 
of  the  peasantry,  are  based  mostly  on  personal  credit,  and 
do  not  profess  to  encourage  greatly  the  saving  and  lending 
activities  of  their  members.  Both  forms  of  association 
loan  money  to  their  members  at  lower  rates  of  interest 
than  these  persons  could  obtain  elsewhere.  Hence  credit 
co-operation  directly  reduces  the  burden  of  interest. 

The  Schulze-Delitzsch  societies  have  more  than  half  a 
million  members  in  the  cities  and  towns  of  Germany,  sixty 
per  cent,  of  whom  take  advantage  of  the  borrowing  facili- 
ties. The  Raiffeisen  banks  comprise  about  one-half  of  all 
the  independent  German  agriculturists.  Some  form  of 
co-operative  banking  is  well  established  in  every  important 
country  of  Europe,  except  Denmark  and  Great  Britain. 


CO-OPERATION   AS   A   PARTIAL   SOLVENT  21/ 

In  the  former  country  its  place  seems  to  be  satisfactorily 
filled  by  the  ordinary  commercial  banks.  Its  absence  from 
Great  Britain  is  apparently  due  to  the  credit  system  pro- 
vided by  the  large  landholders,  to  the  scarcity  of  peasant 
proprietors,  and  to  general  lack  of  initiative.  It  is  espe- 
cially strong  in  Italy,  Belgium,  and  Austria,  and  it  has 
made  a  promising  beginning  in  Ireland.  In  every  country 
in  which  it  has  obtained  a  foothold,  it  gives  indication  of 
steady  and  continuous  progress.  Nevertheless  it  is  sub- 
ject to  definite  limits.  It  can  never  make  much  headway 
among  that  class  of  persons  whose  material  resources  are 
sufficiently  large  and  palpable  to  command  loans  on  the 
usual  terms  offered  by  the  commercial  banks.  As  a  rule, 
these  terms  are  quite  as  favourable  as  those  available 
through  the  co-operative  credit  associations.  It  is  only 
because  the  poorer  men  cannot  obtain  loans  from  the  com- 
mercial banks  on  the  prevailing  conditions  that  they  are 
impelled  to  have  recourse  to  the  co-operative  associations. 

Co-operative  Agricultural  Societies 

The  chief  operations  of  agricultural  co-operative  socie- 
ties are  manufacturing,  marketing,  and  purchasing.  In 
the  first  named  field  the  most  important  example  is  the 
co-operative  dairy.  The  owners  of  cows  hold  the  stock 
or  shares  of  the  concern,  and  in  addition  to  dividends  re- 
ceive profits  in  proportion  to  the  amount  of  milk  that  they 
supply.  In  Ireland  and  some  other  countries,  a  portion  of 
the  profits  goes  to  the  employes  of  the  dairy  as  a  dividend 
on  wages.  Other  productive  co-operatives  of  agriculture 
are  found  in  cheese  making,  bacon  curing,  distilling,  and 
wine  making.  All  are  conducted  on  the  same  general 
principles  as  the  co-operative  dairy. 

Through  the  marketing  societies  and  purchasing 
societies,  the  farmers  are  enabled  to  sell  their  products  to 
better  advantage,  and  to  obtain  materials  needed  for  carry- 
ing on  agricultural  operations  more  cheaply  than  would  be 


2l8  DISTRIBUTIVE   JUSTICE 

possible  by  isolated  individual  action.  Some  of  the  prod- 
ucts marketed  by  the  selling  societies  are  eggs,  milk, 
poultry,  fruit,  vegetables,  live  stock,  and  various  kinds  of 
grain.  The  purchasing  societies  supply  for  the  most  part 
manures,  seeds,  and  machinery.  Occasionally  they  buy 
the  most  costly  machinery  in  such  a  way  that  the  associa- 
tion becomes  the  corporate  owner  of  the  implements.  In 
these  cases  the  individual  members  have  only  the  use  of 
the  machines,  but  they  would  be  unable  to  enjoy  even  that 
advantage  were  it  not  for  the  intervention  of  the  co-opera- 
tive society.  Where  such  arrangements  exist,  the  society 
exemplifies  not  only  co-operative  buying  but  co-operative 
ownership. 

Agricultural  co-operation  has  become  most  widely  ex- 
tended in  Denmark,  and  has  displayed  its  most  striking 
possibilities  in  Ireland.  Relatively  to  its  population,  the 
former  country  has  more  farmers  in  co-operative  societies, 
and  has  derived  more  profit  therefrom,  than  any  other 
nation.  The  rapid  growth  and  achievements  of  agricul- 
tural co-operation  in  the  peculiarly  unfavourable  circum- 
stances of  Ireland  constitute  the  most  convincing  proof 
to  be  found  anywhere  of  the  essential  soundness  and 
efficacy  of  the  movement.  Various  forms  of  rural  co- 
operative societies  are  solidly  established  in  Germany, 
France,  Belgium,  Italy,  and  Switzerland.  In  recent  years 
the  movement  has  made  some  progress  in  the  United 
States,  especially  in  relation  to  dairies,  grain  elevators,  the 
marketing  of  live  stock  and  fruit,  and  various  forms  of 
rural  insurance.  The  co-operative  insurance  companies 
effect  a  saving  to  the  Minnesota  farmers  of  $700,000 
annually,  and  the  co-operative  elevators  handle  about  30 
per  cent,  of  the  grain  marketed  in  that  state.  In  191 5  the 
business  transacted  by  the  co-operative  marketing  and 
purchasing  organisations  of  the  farmers  of  the  United 
States  amounted  to  $1,400,000,000. 

The  transformation  in  the  rural  life  of  more  than  one 


CO-OPERATION   AS   A   PARTIAL   SOLVENT  219 

European  community  through  co-operation  has  amounted 
to  Httle  less  than  a  revolution.  Higher  standards  of  agri- 
cultural products  and  production  have  been  set  up  and 
maintained,  better  methods  of  farming  have  been  incul- 
cated and  enforced,  and  the  whole  social,  moral,  and  civic 
life  of  the  people  has  been  raised  to  a  higher  level.  From 
the  viewpoint  of  material  gain,  the  chief  benefits  of  agri- 
cultural co-operation  have  been  the  elimination  of  un- 
necessary middlemen,  and  the  economies  of  buying  in  large 
quantities,  selling  in  the  best  markets,  and  employing  the 
most  efficient  implements.  As  compared  with  farming 
conducted  on  a  large  scale,  the  small  farm  possesses  cer- 
tain advantages,  and  is  subject  to  certain  disadvantages. 
It  is  less  wasteful,  permits  greater  attention  to  details,  and 
makes  a  greater  appeal  to  the  self  interest  of  the  cultivator; 
but  the  small  farmer  cannot  afford  to  buy  the  best 
machinery,  nor  is  he  in  a  position  to  carry  on  to  the  best 
advantage  the  commercial  features  of  his  occupation,  such 
as  borrowing,  buying,  and  marketing.  Co-operation  frees 
him  from  all  these  handicaps.  "  The  co-operative  com- 
munity ...  is  one  in  which  groups  of  humble  men  com- 
bine their  efforts,  and  to  some  extent  their  resources,  in 
order  to  secure  for  themselves  those  advantages  in  in- 
dustry which  the  masters  of  capital  derive  from  the 
organisation  of  labour,  from  the  use  of  costly  machinery, 
and  from  the  economies  of  business  when  done  on  a  large 
scale.  They  apply  in  their  industry  the  methods  by  which 
the  fortunes  of  the  magnates  in  commerce  and  manufac- 
ture are  made."  These  words,  uttered  by  a  prominent 
member  of  the  Irish  co-operative  movement,  summarise 
the  aims  and -achievements  of  agricultural  co-operation  in 
every  country  of  Europe  in  which  it  has  obtained  a  strong 
foothold.  In  every  such  community  the  small  farm  has 
gained  at  the  expense  of  the  large  farm  system.  Finally, 
agricultural  co-operation  reduces  the  burden  of  interest  by 
eliminating  some  unnecessary  capital,  stimulates  saving 


220  DISTRIBUTIVE   JUSTICE 

among  the  tillers  of  the  soil  by  providing  a  ready  and  safe 
means  of  investment,  and  in  manifold  ways  contributes 
materially  toward  a  better  distribution  of  wealth. 

Co-operative  Mercantile  Societies 

Co-operative  stores  are  organised  by  and  for  consumers. 
In  every  country  they  follow  rather  closely  the  Rochdale 
system,  so  called  from  the  English  town  in  which  the  fxrst 
store  of  this  kind  was  established  in  1844.  The  members 
of  the  co-operative  society  furnish  the  capital,  and  receive 
thereon  interest  at  the  prevailing  rate,  usually  five  per  cent. 
The  stores  sell  goods  at  about  the  same  prices  as  their 
privately  owned  competitors,  but  return  a  dividend  on  the 
purchases  of  all  those  customers  who  are  members  of  the 
society.  The  dividends  are  provided  from  the  surplus 
which  remains  after  wages,  interest  on  the  capital  stock, 
and  all  other  expenses  have  been  paid.  In  some  co-opera- 
tive stores  non-members  receive  a  dividend  on  their  pur- 
chases at  half  the  rate  accorded  to  members  of  the  society, 
but  only  on  condition  that  these  payments  shall  be  invested 
in  the  capital  stock  of  the  enterprise.  And  the  members 
themselves  are  strongly  urged  to  make  this  disposition  of 
their  purchase-dividends.  Since  the  latter  are  paid  only 
quarterly,  the  co-operative  store  exercises  a  considerable 
influence  toward  inducing  its  patrons  to  save  and  to  become 
small  capitalists. 

In  Great  Britain  the  vast  majority  of  the  retail  stores 
have  been  federated  into  two  great  wholesale  societies,  one 
in  England  and  the  other  in  Scotland.  The  retail  stores 
provide  the  capital,  and  participate  in  the  profits  according 
to  the  amounts  purchased,  just  as  the  individual  consumers 
furnish  the  capital  and  share  the  profits  of  the  retail  estab- 
lishments. The  Scottish  Wholesale  Society  divides  a  part 
of  the  profits  among  its  employes.  Besides  their  opera- 
tions as  jobbers,  the  wholesale  societies  are  bankers  for 
the  retail  stores,  and  own  and  operate  factories,  farms. 


CO-OPERATION    AS   A   PARTIAL  SOLVENT  221 

warehouses,  and  steamships.  Many  of  the  retail  co-opera- 
tives likewise  carry  on  productive  enterprises,  such  as 
milling,  tailoring,  bread  making,  and  the  manufacture  of 
boots,  shoes,  and  other  commodities,  and  some  of  them 
build,  sell,  and  rent  cottages,  and  lend  money  to  members 
who  desire  to  obtain  homes. 

The  co-operative  store  movement  has  made  greatest 
progress  in  its  original  home.  Great  Britain.  In  19 13 
about  one  person  in  every  three  was  to  some  degree  inter- 
ested in  or  a  beneficiary  of  these  institutions.  The  profits 
of  the  stores  amounted  to  about  $71,302,070,  which  was 
about  35  per  cent,  on  the  capital.  The  employes  num- 
bered about  145,000,  and  the  sales  for  the  year  aggregated 
$650,000,000.  The  English  Wholesale  Society  was  the 
largest  flour  miller  and  shoe  manufacturer  in  Great  Brit- 
ain, and  its  total  business  amounted  to  $150,000,000. 
Outside  of  Great  Britain,  co-operative  distribution  has 
been  most  successful  in  Germany,  Belgium,  and  Switzer- 
land. It  has  had  a  fair  measure  of  development  in  Italy, 
but  has  failed  to  assume  any  importance  in  France. 
"  There  is  every  sign  that  within  the  near  future  —  except 
in  France  —  the  stores  will  come  to  include  the  great 
majority  of  the  wage  earning  class,  which  is  a  constantly 
growing  percentage  of  the  total  population."  ^  Within 
recent  years  a  respectable  number  of  stores  have  been 
established  on  a  sound  basis  in  Canada  and  the  United 
States.  Owing,  however,  to  the  marked  individualism 
and  the  better  economic  conditions  of  these  two  countries, 
the  co-operative  movement  will  continue  for  some  time  to 
be  relatively  slow. 

As  in  the  case  of  agricultural  co-operation,  the  money 
benefits  accruing  to  the  members  of  the  co-operative  stores 
consist  mainly  of  profits  rather  than  interest.  In  the 
absence  of  the  store  societies,  these  profits  would  have 
gone  for  the  most  part  to  middlemen  as  payments  for  the 

1  Fay,  "  Co-operation  at  Home  and  Abroad,"  p.  340. 


222  DISTRIBUTIVE   JUSTICE 

risks  and  labour  of  conducting  privately  owned  establish- 
ments. Forty-seven  of  the  sixty  million  dollars  profits  of 
the  British  co-operative  stores  in  1910  were  divided  among 
more  than  two  and  one-half  million  members  of  these  in- 
stitutions, instead  of  going  to  a  comparatively  small  num- 
ber of  private  merchants.  The  other  thirteen  million 
dollars  were  interest  on  the  capital  stock.  Had  the  mem- 
bers invested  an  equal  amount  in  other  enterprises  they 
could,  indeed,  have  obtained  about  the  same  rate  and 
amount  of  interest,  but  in  the  absence  of  the  co-operative 
stores  their  inducements  and  opportunities  to  save  would 
have  been  much  smaller.  For  it  must  be  kept  in  mind  that 
a  very  large  part  of  the  capital  stock  in  the  co-operative 
stores  is  derived  from  the  members'  dividends  on  their 
purchases  at  such  stores,  and  would  not  have  come  into 
existence  at  all  without  these  establishments.  The  gains 
of  the  co-operative  stores,  whether  classified  as  profits  or 
as  interest,  are  evidently  a  not  inconsiderable  indication  of 
a  better  distribution  of  wealth. 

Co-operation  in  Production 

Co-operative  production  has  occasionally  been  pro- 
nounced a  failure.  This  judgment  is  too  sweeping  and 
too  severe.  "  As  a  matter  of  fact,"  sa^s  a  prominent 
London  weekly,  "  the  co-operators'  success  has  been  even 
more  remarkable  in  production  than  in  distribution.  The 
co-operative  movement  runs  five  of  the  largest  of  our  flour 
mills;  it  has,  amongst  others,  the  very  largest  of  our  boot 
factories ;  it  makes  cotton  cloth  and  woollens,  and  all  sorts 
of  clothing;  it  has  even  a  corset  factory  of  its  own;  it 
turns  out  huge  quantities  of  soap;  it  makes  every  article 
of  household  furniture;  it  produces  cocoa  and  confec- 
tionery; it  grows  its  own  fruit  and  makes  its  own  jams; 
it  has  one  of  the  largest  tobacco  factories,  and  so  on." 
Obviously  this  passage  refers  to  that  kind  of  productive 
co-operation  which  is  carried  on  by  the  stores,  not  to  pro- 


CO-OPERATION    AS   A   PARTIAL  SOLVENT  223 

ductive  concerns  owned  and  managed  by  the  workers 
therein  employed.  Nevertheless  the  enterprises  in  ques- 
tion are  co-operatively  managed,  and  hence  exemplify  co- 
operation rather  than  private  and  competitive  industry. 
They  ought  not  to  be  left  out  of  any  statement  of  the  field 
occupied  by  co-operative  production.  The  limitations  and 
possibilities  of  co-operation  in  production  can  best  be  set 
forth  by  considering  its  three  different  forms  separately. 

The  "  perfect "  form  occurs  when  all  the  workers  en- 
gaged in  a  concern  own  all  the  share  capital,  control  the 
entire  management,  and  receive  the  whole  of  the  wages, 
profits,  and  interest.  In  this  field  the  failures  have  been 
much  more  numerous  and  conspicuous  than  the  successes. 
Godin's  stove  works  at  Guise,  France,  is  the  only  important 
enterprise  of  this  kind  that  is  now  in  existence.  Great 
Britain  has  several  establishments  in  which  the  workers 
own  a  large  part  of  the  capital,  but  apparently  none  in 
which  they  are  the  sole  proprietors  and  managers.  The 
"  labour  societies  "  of  Italy,  consisting  mostly  of  diggers, 
masons,  and  bricklayers,  co-operatively  enter  into  contracts 
for  the  performance  of  public  works,  and  share  in  the 
profits  of  the  undertaking  in  addition  to  their  wages;  but 
the  only  capital  that  they  provide  consists  of  comparatively 
simple  and  inexpensive  tools.  The  raw  material  and  other 
capital  is  furnished  by  the  public  authority  which  gives  the 
contract. 

A  second  kind  of  productive  co-operation  is  found  in 
the  arrangement  known  as  co-partnership.  This  is  "  the 
system  under  which,  in  the  first  place,  a  substantial  and 
known  share  of  the  profit  of  a  business  belongs  to  the 
workers  in  it,  not  by  right  of  any  shares  they  may  hold, 
or  any  other  title,  but  simply  by  right  of  the  labour  they 
have  contributed  to  make  the  profit;  and,  in  the  second 
place,  every  worker  is  at  liberty  to  invest  his  profit,  or  any 
other  savings,  in  shares  of  the  society  or  company,  and  so 
become  a  member  entitled  to  vote  on  the  affairs  of  the 


224  DISTRIBUTIVE   JUSTICE 

body  which  employs  him."  ^  So  far  as  its  first,  or  profit 
sharing,  feature  is  concerned*  co-partnership  is  not  genuine 
co-operation,  for  it  includes  neither  ownership  of  capital 
nor  management  of  the  business.  Co-operative  action 
begins  only  with  the  adoption  of  the  second  element.  In 
most  of  the  existing  co-partnership  concerns,  all  the  em- 
ployes are  urged,  and  many  of  them  required  to  invest  at 
least  a  part  of  their  profits  in  the  capital  stock.  The  most 
notable  and  successful  of  these  experiments  is  that  carried 
on  by  the  South  Metropolitan  Gas  Company  of  London. 
Practically  all  the  company's  6,000  employes  are  now 
among  its  stockholders.  Although  their  combined  hold- 
ings are  only  about  one-twenty-eighth  of  the  total,  they 
are  empowered  to  select  two  of  the  ten  members  of  the 
board  of  directors.  Essentially  the  same  copartnership 
arrangements  have  been  adopted  by  about  one-half  the 
privately  owned  gas  companies  of  Great  Britain.  In  none 
of  them,  however,  have  the  workers  obtained  as  yet  such 
a  large  percentage  of  either  ownership  or  control  as  in  the 
South  Metropolitan.  Co-partnership  exists  in  several 
other  enterprises  in  Great  Britain,  and  is  found  in  a  con- 
siderable number  of  French  concerns.  There  are  a  few 
instances  in  the  United  States,  the  most  thoroughgoing 
being  that  of  N.  O.  Nelson  &  Co.  at  Le  Claire,  111. 

As  already  noted,  the  co-operative  stores  exemplify  a 
third  type  of  co-operative  production.  In  some  cases  the 
productive  concern  is  under  the  management  of  a  local 
retail  establishment,  but  the  great  majority  of  them  are 
conducted  by  the  English  and  Scottish  Wholesale  Societies. 
As  regards  the  employes  of  these  enterprises,  the  arrange- 
ment is  not  true  co-operation,  since  they  have  no  part  in 
the  ownership  of  the  capital.  The  Scottish  Wholesale 
Society,  as  we  have  seen,  permits  the  employes  of  its  pro- 
ductive works  to  share  in  the  profits  thereof;  nevertheless 
it  does  not  admit  them  as  stockholders,  nor  give  them  any 

1  Schloss,  "  Methods  of  Industrial  Remuneration,"  pp.  353,  354. 


CO-OPERATION   AS   A   PARTIAL   SOLVENT  225 

voice  in  the  management  In  all  cases  the  workers  may, 
indeed,  become  owners  of  stock  in  their  local  retail  stores. 
Since  the  latter  are  stockholders  in  the  wholesale  societies, 
which  in  turn  own  the  productive  enterprises,  the  workers 
have  a  certain  indirect  and  attenuated  proprietorship  in 
the  productive  concerns.  But  they  derive  therefrom  no 
dividends.  All  the  interest  and  most  of  the  profits  of  the 
productive  establishments  are  taken  by  the  wholesale  and 
retail  stores.  For  it  is  the  theory  of  the  wholesale  societies 
that  the  employes  in  the  works  of  production  should  share 
in  the  gains  thereof  only  as  consumers.  They  are  to  profit 
only  in  the  same  way  and  to  the  same  extent  as  other  con- 
sumer-members of  the  local  retail  establishments. 

The  most  effective  and  beneficial  form  of  co-operative 
production  is  evidently  that  which  has  been  described  as 
the  "  perfect "  type.  Were  all  production  organised  on 
this  plan,  the  social  burden  of  interest  would  be  insig- 
nificant, industrial  despotism  would  be  ended,  and  indus- 
trial democracy  realised.  As  things  are,  however,  the 
establishments  exemplifying  this  type  are  of  small  im- 
portance. Their  increase  and  expansion  are  impeded  by 
lack  of  directive  ability  and  of  capital,  and  the  risk  to  the 
workers'  savings.  Yet  none  of  these  obstacles  is  neces- 
sarily insuperable.  Directive  ability  can  be  developed  in 
the  course  of  time,  just  as  it  was  in  the  co-operative  stores. 
Capital  can  be  obtained  fast  enough  perhaps  to  keep  pace 
with  the  supply  of  directive  ability  and  the  spirit  of  co- 
operation. The  risk  undertaken  by  workers  who  put  their 
savings  into  productive  concerns  owned  and  managed  by 
themselves  need  not  be  greater  than  that  now  borne  by 
investors  in  private  enterprises  of  the  same  kind.  There 
is  no  essential  reason  why  the  former  should  not  provide 
the  same  profits  and  insurance  against  business  risks  as 
the  latter.  While  the  employes  assume  none  of  the  risks 
of  capitalistic  industry,  neither  do  they  receive  any  of  the 
profits.     If  the  co-operative  factory  exhibits  the  same  de- 


226  DISTRIBUTIVE   JUSTICE 

gree  of  business  efficiency  as  the  private  enterprise  it  will 
necessarily  afford  the  workers  adequate  protection  for 
their  savings  and  capital.  Indeed,  if  "  perfect"  co-opera- 
tive production  is  to  be  successful  at  all  its  profits  will  be 
larger  than  those  of  the  capitalistic  concern,  owing  to  the 
greater  interest  taken  by  the  workers  in  their  tasks,  and  in 
the  management  of  the  business. 

For  a  long  time  to  come,  however,  it  is  probable  that 
"  perfect "  co-operative  production  will  be  confined  to 
relatively  small  and  local  industries.  The  difficulty  of 
finding  sufficient  workers'  capital  and  ability  to  carry  on, 
for  example,  a  transcontinental  railroad  or  a  nationwide 
steel  business,  is  not  likely  to  be  overcome  for  one  or  two 
generations.^ 

The  labour  co-partnership  form  of  co-operation  is  sus- 
ceptible of  much  wider  and  more  rapid  extension.  It  can 
be  adapted  readily  to  the  very  large  as  well  as  to  the  small 
and  medium  sized  concerns.  Since  it  requires  the  workers 
to  own  but  a  part  of  the  capital,  it  can  be  established  in  any 
enterprise  in  which  the  capitalists  show  themselves  will- 
ing and  sympathetic.  In  every  industrial  corporation 
there  are  some  employes  who  possess  savings,  and  these 
can  be  considerably  increased  through  the  profit  sharing 
feature  of  copartnership.  A  very  long  time  must,  indeed, 
elapse  before  the  workers  in  any  of  the  larger  enterprises 
could  get  possession  of  all,  or  even  of  a  controlling  share 
of  the  capital,  and  a  considerable  time  would  be  needed 
to  educate  and  fit  them  for  successful  management. 

Production  under  the  direction  of  the  co-operative  stores 
can  be  extended  faster  than  either  of  the  other  two  forms, 
and  it  has  before  it  a  very  wide  even  though  definitely 
limited  field.  The  British  wholesale  societies  have  already 
shown  themselves  able  to  conduct  with  great  success  large 
manufacturing  concerns,   have  trained  and  attracted  an 

1  Cf.,  however,  Mr.  A.  R.  Orage's  work,  "  National  Guilds,"  London, 
1914. 


CO-OPERATION    AS    A    PARTIAL   SOLVENT  22/ 

adequate  number  of  competent  leaders,  and  have  accumu- 
lated so  much  capital  that  they  have  been  obliged  to  invest 
several  million  pounds  in  other  enterprises.  The  possible 
scope  of  the  stores  and  their  co-operative  production  has 
been  well  described  by  C.  R.  Fay :  "  distribution  of  goods 
for  personal  consumption,  first,  among  the  working  class 
population,  secondly,  among  the  salaried  classes  who  feel 
a  homogeneity  of  professional  interest;  production  by 
working  class  organisations  alone  (with  rare  exceptions  in 
Italy)  of  all  the  goods  which  they  distribute  to  their  mem- 
bers. But  this  is  its  limit.  Distribution  among  the  re- 
maining sections  of  the  industrial  population;  production 
for  distribution  to  these  members;  production  of  the  in- 
struments of  production,  and  production  for  international 
trade;  the  services  of  transport  and  exchange:  all  these 
industrial  departments  are,  so  far  as  can  be  seen,  perma- 
nently outside  the  domain  of  a  store  movement."  ^ 

The  theory  by  which  the  stores  attempt  to  justify  the 
exclusion  of  the  employes  of  their  productive  concerns 
from  a  share  of  the  profits  thereof  is  that  all  profits  come 
ultimately  from  the  pockets  of  the  consumer,  and  should 
all  return  to  that  source.  The  defect  in  this  theory  is  that 
it  ignores  the  question  whether  the  consumers  ought  not 
to  be  required  to  pay  a  sufficiently  high  price  for  their 
goods  to  provide  the  producers  with  profits  in  addition  to 
wages.  While  the  wholesale  stores  are  the  owners  and 
managers  of  the  capital  in  the  productive  enterprises,  and 
on  the  capitalistic  principle  should  obtain  the  profits,  the 
question  remains  whether  this  is  necessarily  a  sound  prin- 
ciple, and  whether  it  is  in  harmony  with  the  theory  and 
ideals  of  co-operation.  In  those  concerns  which  have 
adopted  the  labour  copartnership  scheme,  the  workers, 
even  when  they  own  none  of  the  capital,  are  accorded  a 
part  of  the  profits.  It  is  assumed  that  this  is  a  fairer  and 
wiser  method  of  distribution  than  that  which  gives  the 

1  Op.  cit,  p.  341. 


228  DISTRIBUTIVE   JUSTICE 

labourer  only  wages,  leaving  all  the  profits  to  the  manager- 
capitalist.  This  feature  of  co-partnership  rests  on  the 
.theory  that  the  workers  can,  if  they  will,  increase  their 
efficiency  and  reduce  the  friction  between  themselves  and 
their  employer  to  such  an  extent  as  to  make  the  profit  shar- 
ing arrangement  a  good  thing  for  both  parties.  Conse- 
quently the  profits  obtained  by  the  workers  are  a  payment 
for  this  specific  contribution  to  the  prosperity  of  the  busi- 
ness. Why  should  not  this  theory  find  recognition  in 
productive  enterprises  conducted  by  the  co-operative 
stores  ? 

In  the  second  place,  the  workers  in  these  concerns  ought 
to  be  permitted  to  participate  in  the  capital  ownership  and 
management.  They  would  thus  be  strongly  encouraged  to 
become  better  workers,  to  save  more  money,  and  to  in- 
crease their  capacity  for  initiative  and  self  government. 
Moreover,  this  arrangement  would  go  farther  than  any 
other  system  toward  reconciling  the  interests  of  producer 
and  consumer.  As  producer,  the  worker  would  obtain, 
besides  his  wages,  interest  and  profits  up  to  the  limit  set 
by  the  competition  of  private  productive  concerns.  As 
consumer,  he  would  share  in  the  profits  and  interest  which 
would  otherwise  have  gone  to  the  private  distributive  enter- 
prises. In  this  way  the  producer  and  consumer  would 
each  get  the  gains  that  were  due  specifically  and  respec- 
tively to  his  activity  and  efficiency. 

Advantages  and  Prospects  of  Co-operation 

At  this  point  it  will  perhaps  be  well  to  sum  up  the  ad- 
vantages and  to  estimate  the  prospects  of  the  co-operative 
movement.  In  all  its  forms  co-operation  eliminates  some 
waste  of  capital  and  energy,  and  therefore  transfers  some 
interest  and  profits  from  a  special  capitalist  and  under- 
taking class  to  a  larger  and  economically  weaker  group  of 
persons.  For  it  must  be  borne  in  mind  that  all  co-opera- 
tive enterprises  are  conducted  mainly  by  and  for  labourers 


CO-OPERATION   AS   A   PARTIAL   SOLVENT  229 

or  small  farmers.  Hence  the  system  always  makes 
directly  for  a  better  distribution  of  wealth.  To  a  con- 
siderable extent  it  transfers  capital  ownership  from  those 
who  do  not  themselves  work  with  or  upon  capital  to  those 
who  are  so  engaged;  namely,  the  labourers  and  the 
farmers;  thus  it  diminishes  the  unhealthy  separation  now 
existing  between  the  owners  and  the  users  of  the  instru- 
ments of  production.  Co-operation  has,  in  the  second 
place,  a  very  great  educational  value.  It  enables  and  in- 
duces the  weaker  members  of  economic  society  to  combine 
and  utilise  energies  and  resources  that  would  otherwise 
remain  unused  and  undeveloped ;  and  it  greatly  stimulates 
and  fosters  initiative,  self  confidence,  self  restraint,  self 
government,  and  the  capacity  for  democracy.  In  other 
words,  it  vastly  increases  the  development  and  efficiency  of 
the  individual.  It  likewise  induces  him  to  practise  thrift, 
and  frequently  provides  better  fields  for  investment  than 
would  be  open  to  him  outside  the  co-operative  movement. 
It  diminishes  selfishness  and  inculcates  altruism;  for  no 
co-operative  enterprise  can  succeed  in  which  the  individual 
members  are  not  willing  to  make  greater  sacrifices  for  the 
common  good  than  are  ordinarily  evoked  by  private  enter- 
prise. Precisely  because  co-operation  makes  such  heavy 
demands  upon  the  capacity  for  altruism,  its  progress 
always  has  been  and  must  always  continue  to  be  relatively 
slow.  Its  fundamental  and  perhaps  chief  merit  is  that  it 
does  provide  the  mechanism  and  the  atmosphere  for  a 
greater  development  of  the  altruistic  spirit  than  is  possible 
under  any  other  economic  system  that  has  ever  been  tried 
or  devised. 

By  putting  productive  property  into  the  hands  of  those 
who  now  possess  little  or  nothing,  co-operation  promotes 
social  stability  and  social  progress.  This  statement  is  true 
in  some  degree  of  all  forms  of  co-operation,  but  it  applies 
with  particular  force  to  those  forms  which  are  carried  on 
by  the  working  classes.     A  steadily  growing  number  of 


230  DISTRIBUTIVE   JUSTICE 

keen-sighted  social  students  are  coming  to  realise  that  an 
industrial  system  which  permits  a  comparatively  small  sec- 
tion of  society  to  own  the  means  of  production  and  the 
instrumentalities  of  distribution,  leaving  to  the  great 
majority  of  the  workers  nothing  but  their  labour  power, 
is  fundamentally  unstable,  and  contains  within  itself  the 
germs  of  inevitable  dissolution.  No  mere  adequacy  of 
wages  and  other  working  conditions,  and  no  mere  security 
of  the  workers'  livelihood,  can  permanently  avert  this 
danger,  nor  compensate  the  individual  for  the  lack  of 
power  to  determine  those  activities  of  life  which  depend 
upon  the  possession  of  property.  Through  co-operation 
this  unnatural  divorce  of  the  users  from  the  owners  of 
capital  can  be  minimised.  The  worker  is  converted  from 
a  mere  wage  earner  to  a  wage  earner  plus  a  property 
owner,  thus  becoming  a  safer  and  more  useful  member  of 
society.  In  a  word,  co-operation  produces  all  the  well 
recognised  individual  and  social  benefits  which  have  in  all 
ages  been  evoked  by  the  "  magic  of  property." 

Finally,  co-operation  is  a  golden  mean  between  individ- 
ualism and  Socialism.  It  includes  all  the  good  features 
and  excludes  all  the  evil  features  of  both.  On  the  one 
hand,  it  demands  and  develops  individual  initiative  and 
self  reliance,  makes  the  rewards  of  the  individual  depend 
upon  his  own  efforts  and  efficiency,  and  gives  him  full 
ownership  of  specific  pieces  of  property.  On  the  other 
hand,  it  compels  him  to  submerge  much  of  the  selfishness 
and  indifference  to  the  welfare  of  his  fellows  which  char- 
acterise our  individual  economy.  It  embraces  all  the  good 
that  is  claimed  for  Socialism  because  it  induces  men  to  con- 
sider and  to  work  earnestly  for  the  common  good,  elim- 
inates much  of  the  waste  of  competitive  industry,  reduces 
and  redistributes  the  burdens  of  profits  and  interest,  and 
puts  the  workers  in  control  of  capital  and  industry.  At 
the  same  time,  it  avoids  the  evils  of  an  industrial  des- 
potism, of  bureaucratic  inefficiency,  of  individual  indiffer- 


CO-OPERATION    AS    A    PARTIAL   SOLVENT  23 1 

ence,  and  of  an  all  pervading  collective  ownership.  The 
resemblances  that  Socialists  sometimes  profess  to  see  be- 
tween their  system  and  co-operation  are  superficial  and  far 
less  important  than  the  differences.  Under  both  arrange- 
ments the  workers  would,  we  are  told,  own  and  control  the 
means  of  production;  but  the  members  of  a  co-operative 
society  directly  own  and  immediately  control  a  definite 
amount  of  specific  capital,  which  is  essentially  private 
property.  In  a  Socialist  regime  the  workers'  ownership  of 
capital  would  be  collective  not  private,  general  not  specific, 
while  their  control  of  the  productive  instruments  with 
which  they  worked  would  be  shared  with  other  citizens. 
The  latter  would  vastly  outnumber  the  workers  in  any  par- 
ticular industry,  and  would  be  interested  therein  not  as 
producers  but  as  consumers.  No  less  obvious  and  funda- 
mental are  the  differences  in  favour  of  co-operation  as 
regards  the  vital  matters  of  freedom,  opportunity,  and 
efficiency. 

In  so  far  as  the  future  of  co-operation  can  be  predicted 
from  its  past,  the  outlook  is  distinctly  encouraging.  The 
success  attained  in  credit,  agriculture,  and  distribution,  is 
a  sufficient  guarantee  for  these  departments.  Wliile  pro- 
ductive co-operation  has  experienced  more  failures  than 
successes,  it  has  finally  shown  itself  to  be  sound  in  prin- 
ciple, and  feasible  in  practice.  Its  extension  will  neces- 
sarily be  slow,  but  this  is  exactly  what  should  be  expected 
by  any  one  who  is  acquainted  with  the  limitations  of  human 
nature,  and  the  history  of  human  progress.  If  a  move- 
ment that  is  capable  of  modifying  so  profoundly  the  con- 
dition of  the  workers  as  is  co-operative  production,  gave 
indications  of  increasing  rapidly,  we  should  be  inclined  to 
question  its  soundness  and  permanence.  Experience  has 
given  us  abundant  proof  that  no  mere  system  or  machinery 
can  effect  a  revolutionary  improvement  in  economic  con- 
ditions. No  social  system  can  do  more  than  provide  a 
favourable  environment  for  the  development  of  those  in- 


232  DISTRIBUTIVE   JUSTICE 

dividual  capacities  and  energies  which  are  the  true  and 
the  only  causal  forces  of  betterment. 

Nor  is  it  to  be  expected  that  any  of  the  other  three  forms 
of  co-operation  will  ever  cover  the  entire  field  to  which  it 
might,  absolutely  speaking,  be  extended ;  or  that  co-opera- 
tion as  a  whole  will  become  the  one  industrial  system  of 
the  future.  Even  if  the  latter  contingency  were  possible 
it  would  not  be  desirable.  The  elements  of  our  economic 
life,  and  the  capacities  of  human  nature,  are  too  varied 
and  too  complex  to  be  forced  with  advantage  into  any  one 
system,  whether  capitalism.  Socialism,  or  co-operation. 
Any  single  system  or  form  of  socio-economic  organisation 
would  prove  an  intolerable  obstacle  to  individual  oppor- 
tunity and  social  progress.  Multiplicity  and  variety  in 
social  and  industrial  orders  are  required  for  an  effective 
range  of  choices,  and  an  adequate  scope  for  human  effort. 
In  a  general  way  the  limits  of  co-operation  in  relation  to 
the  other  forms  of  economic  organisation  have  been  satis- 
factorily stated  by  Mr.  Aneurin  Williams :  "  I  suggest, 
therefore,  that  where  there  are  great  monopolies,  either 
natural  or  created  by  the  combination  of  businesses,  there 
you  have  a  presumption  in  favour  of  State  and  municipal 
ownership.  In  those  forms  of  industry  where  individ- 
uality is  everything;  where  there  are  new  inventions  to 
make,  or  to  develop  or  put  on  the  market,  or  merely  to 
adopt  in  some  rapidly  transformed  industry;  where  the 
eye  of  the  master  is  everything;  where  reference  to  a  com- 
mittee, or  appeals  from  one  official  to  another,  would  cause 
fatal  delay:  there  is  the  natural  sphere  of  individual  enter- 
prise pure  and  simple.  Between  these  two  extremes  there 
is  surely  a  great  sphere  for  voluntary  association  to  carry 
on  commerce,  manufacture,  and  retail  trade,  in  circum- 
stances where  there  is  no  natural  monopoly,  and  where  the 
routine  of  work  is  not  rapidly  changing,  but  on  the  whole 
fairly  well  established  and  constant."  ^ 
1 "  Copartnership  and  Profit-Sharing,"  p.  235. 


CO-OPERATION   AS   A   PARTIAL  SOLVENT  233 

The  province  open  to  co-operation  is,  indeed,  very  large. 
If  it  were  fully  occupied  the  danger  of  a  social  revolution 
would  be  non-existent,  and  what  remained  of  the  socio- 
industrial  problem  would  be  relatively  undisturbing  and 
unimportant.  The  "  specialisation  of  function  "  in  indus- 
trial organisation,  as  outlined  by  Mr.  Williams,  would 
give  a  balanced  economy  in  which  the  three  great  socio- 
economic systems  and  principles  would  have  full  play,  and 
each  would  be  required  to  do  its  best  in  fair  competition 
with  the  other  two.  Economic  life  would  exhibit  a 
diversity  making  strongly  for  social  satisfaction  and 
stability,  inasmuch  as  no  very  large  section  of  the  indus- 
trial population  would  desire  to  overthrow  the  existing 
order.  Finally,  the  choice  of  three  great  systems  of  in- 
dustry would  offer  the  utmost  opportunity  and  scope  for 
the  energies  and  the  development  of  the  individual.  And 
this,  when  all  is  said,  remains  the  supreme  end  of  a  just 
and  efficient  socio-industrial  organisation. 

REFERENCES  ON  SECTION  II 

Fisher:    The  Rate  of  Interest.    New  York;  1907. 
Cassel  :     Nature  and  Necessity  of  Interest,    London ;  1903. 
Conner:     Interest  and  Saving.    London;  1906. 
Landry  :     L'  Interet  du  Capital.     Paris ;  1904. 

Menger  :    The  Right  to  the  Whole  Produce  of  Labour.    London ;  1899. 
Cathrein-Gettelman :     Socialism.     St.  Louis;  1904. 
Skelton:     Socialism:  A  Critical  Analysis.     New  York;  191 1. 
Spargo:     Socialism.    Macmillan ;  1906. 
Walling:     Socialism  As  It  Is.     New  York;  1912. 
Hillquit-Ryan  :     Socialism:  Promise  or  Menace?    Macmillan;  1914. 
Savatier  :    La  Theorie  Moderne  du  Capital  et  la  Justice.    Paris ;  1898. 
Garriguet  :     Regime  du  Travail.     Paris ;  1908. 
Funk  :    Zins  und  Wucher.     Tiibingen  ;  1868. 
Holyoake:    The  History  of  Co-operation.    London;  1906. 
Fay  :    Co-operation  at  Home  and  Abroad.    London  ;  1908. 
Williams:    Copartnership  and  Profit-Sharing.    Henry  Holt  &  Co.; 
1913- 


234  DISTRIBUTIVE   JUSTICE 

Mann,  Sievers,  Cox  :    The  Real  Democracy.    London ;  1913. 

Also  the  works  of  Taussig,  Devas,  Antoine,  Hobson,  Nearing, 
Willoughby,  and  Hitze,  which  were  given  at  the  end  of  the  introductory 
chapter. 


SECTION  III 
THE  MORAL  ASPECT  OF  PROFITS 


CHAPTER  XV 

THE   NATURE   OF    PROFITS 

We  have  seen  that  rent  goes  to  the  landlord  as  the  price 
of  land  use,  while  interest  is  received  by  the  capitalist  as 
the  return  for  the  use  of  capital.  The  two  shares  of  the 
product  which  remain  to  be  considered  include  an  element 
which  is  absent  from  both  rent  and  interest.  The  use  for 
which  profits  and  wages  are  paid  comprises  not  merely  the 
utilisation  of  a  productive  factor,  but  the  sustained  exer- 
tion of  the  factor's  owner.  Like  the  landowner  and  the 
capitalist,  the  business  man  and  the  labourer  put  the  pro- 
dutive  factors  which  they  control  at  the  disposal  of  the 
industrial  process;  but  they  do  so  only  when  and  so  long 
as  they  exercise  human  activity.  The  shares  that  they 
receive  are  payments  for  the  continuous  output  of  human 
energy.     No  such  significance  attaches  to  rent  or  interest. 

The  Functions  and  Rewards  of  the  Business  Man 

Who  is  the  business  man,  and  what  is  the  nature  of  his 
share  of  the  product  of  industry?  Let  us  suppose  that 
the  salaried  manager  of  a  hat  factory  decides  to  set  up  a 
business  of  the  same  kind  for  himself.  He  wishes  to  be- 
come an  entrepreneur,  an  undertaker,  a  director  of  indus- 
try, in  more  familiar  language,  a  business  man.  Let  us 
assume  that  he  is  without  money,  but  that  he  commands 
extraordinary  financial  credit.  He  is  able  to  borrow  half 
a  million  dollars  with  which  to  organise,  equip,  and  operate 
the  new  enterprise.  Having  selected  a  favourable  site,  he 
rents  it  on  a  long  term  lease,  and  erects  thereon  the  neces- 
sary buildings.     He  installs  all  the  necessary  machinery  and 

237 


238  DISTRIBUTIVE   JUSTICE 

Other  equipment,  hires  capable  labour,  and  determines  the 
kinds  and  quantities  of  hats  for  which  he  thinks  that  he 
can  find  a  market.  At  the  end  of  a  year,  he  realises  that, 
after  paying  for  labour  of  all  sorts,  returning  interest  to 
the  capitalist  and  rent  to  the  landowner,  defraying  the  cost 
of  repairs,  and  setting  aside  a  fund  to  cover  depreciation, 
he  has  left  for  himself  the  sum  of  ten  thousand  dollars. 
This  is  the  return  for  his  labour  of  organisation  and  direc- 
tion, and  for  the  risk  that  he  underwent.  It  constitutes 
the  share  called  profits,  sometimes  specified  as  net  profits. 

This  case  is  artificial,  since  it  assumes  that  the  business 
man  is  neither  capitalist  nor  landowner  in  addition  to  his 
function  as  director  of  industry.  It  has,  however,  the 
advantage  of  distinguishing  quite  sharply  the  action  of  the 
business  man  as  such.  For  the  latter  merely  organises, 
directs,  and  takes  the  risks  of  the  industrial  process,  finds 
a  market  for  the  product,  and  receives  in  return  neither 
rent  nor  interest  but  only  profits.  In  point  of  fact,  how- 
ever, no  one  ever  functions  solely  as  business  man. 
Always  the  business  man  owns  some  of  the  capital,  and 
very  often  some  of  the  land  involved  in  his  enterprise,  and 
is  the  receiver  not  only  of  profits  but  of  interest  and  rent. 
Thus,  the  farmer  is  a  business  man,  but  he  is  also  a  capi- 
talist, and  frequently  a  landowner.  The  grocer,  the 
clothier,  the  manufacturer,  and  even  the  lawyer  and  the 
doctor  own  a  part  at  least  of  the  capital  with  which  they 
operate,  and  sometimes  they  own  the  land.  Nevertheless 
their  rewards  as  business  men  can  always  be  distinguished 
from  their  returns  as  capitalists  and  landowners  by  finding 
out  what  remains  after  making  due  allowance  for  rent  and 
interest. 

It  is  a  fact  that  many  business  men,  especially  those 
directing  the  smaller  establishments,  use  the  term  profits 
to  include  rent  and  interest  on  their  own  property.  In 
other  words,  they  describe  their  entire  income  from  the 
business    as    profits.     In    the    present    discussion,    and 


THE   NATURE  OF   PROFITS  239 

throughout  this  book  generally,  profits  are  to  be  under- 
stood as  comprising  merely  that  part  of  the  business  man's 
returns  which  he  takes  as  the  reward  of  his  labour,  and  as 
insurance  against  the  risks  affecting  his  enterprise.  De- 
duct from  the  business  man's  total  income  a  sum  which 
will  cover  interest  on  his  capital  at  the  prevailing  rate  and 
rent  on  his  land,  and  you  have  left  his  income  as  business 
man,  his  profits. 

The  Amount  of  Profits 

In  a  preceding  chapter  we  have  seen  that  where  the  con- 
ditions of  capital  are  the  same,  there  exists  a  fairly  uni- 
form rate  of  interest.  No  such  uniformity  obtains  in  the 
field  of  profits.  Businesses  subject  to  the  same  risks  and 
requiring  the  same  kind  of  management  yield  very  dif- 
ferent amounts  of  return  to  their  directors.  In  a  sense 
the  business  man  may  be  regarded  as  the  residual  claimant 
of  industry.  This  does  not  mean  that  he  takes  no  profits 
until  all  the  other  agents  of  production  have  been  fully 
remunerated,  but  that  his  share  remains  indeterminate 
until  the  end  of  the  productive  period,  say,  six  months  or 
a  year,  while  the  shares  of  the  other  agents  are  determined 
beforehand.  At  the  end  of  the  productive  period,  the 
business  man  may  find  that  his  profits  are  large,  moderate, 
or  small,  while  the  landowner,  the  capitalist,  and  the 
labourer  ordinarily  obtain  the  precise  amounts  of  rent,  in- 
terest, and  wages  that  they  had  expected  to  obtain.  That 
there  exists  no  definite  upper  limit  to  profits  is  proved  by 
the  history  of  modern  millionaires.  That  there  exists  no 
rigid  lower  limit  is  proved  by  the  large  proportion  of  enter- 
prises that  meet  with  failure. 

Nevertheless  it  would  be  wrong  to  infer  that  the  volume 
of  profits  is  governed  by  no  law  whatever,  or  that  they 
show  no  tendency  toward  uniformity  in  any  part  of  the 
industrial  field.  There  is  a  calculated  or  preconceived 
minimum.     No  man  will  embark  in  business  for  himself 


240  DISTRIBUTIVE   JUSTICE 

unless  he  has  reason  to  expect  that  it  will  yield  him,  in 
addition  to  protection  against  risks,  an  income  as  large  as 
he  could  obtain  by  hiring  his  services  to  some  one  else.  In 
other  words,  contemplated  profits  must  be  at  least  equal  to 
the  income  of  the  salaried  business  manager.  No  tend- 
ency toward  uniformity  of  profits  exists  among  very  large 
enterprises  nor  among  industries  which  are  constantly 
adopting  new  methods  and  new  inventions.  In  businesses 
of  small  and  moderate  size,  and  in  those  whose  methods 
have  become  standardised,  such  as  a  retail  grocery  store, 
or  a  factory  that  turns  out  staple  kinds  of  shoes,  profits 
tend  to  be  about  the  same  in  the  great  majority  of  estab- 
lishments. In  such  industries  the  profits  of  the  business 
man  do  not  often  exceed  the  salary  that  he  could  com- 
mand as  general  manager  for  some  one  else  in  the  same 
kind  of  business. 

Professor  King  estimates  the  total  volume  of  profits  in 
the  United  States  in  19 10  as  almost  eight  and  one-half 
billion  dollars.  This  was  27.5  per  cent,  of  the  national 
product,  as  against  24.6  per  cent,  in  1890  and  30  per  cent, 
in  1900.^  He  interprets  the  fall  in  the  wage  earners'  share 
which  has  taken  place  since  1890  (53.5  to  46.9  per  cent.) 
as  indicating  a  considerable  increase  in  the  share  of  those 
business  men  who  control  the  very  large  industries.  "  The 
promoters  and  manipulators  of  these  concerns  have  re- 
ceived, as  their  share  of  the  spoils,  permanent  income 
claims,  in  the  shape  of  securities,  large  enough  to  make 
Croesus  appear  like  a  pauper."  ^  Moreover,  even  outside 
this  monopoly  field,  the  more  able  and  successful  business 
men  seem  to  have  obtained  in  recent  years  what  might  be 
termed  a  relatively  large  share  of  the  product  of  industry. 
The  exceptionally  efficient  undertakers,  those  possessing 
the  imagination,  foresight,  judgment,  and  courage  to  take 

i"The  Wealth  and  Income  of  the  People  of  the  United  States," 
158,  160. 
*  Idem,  p.  218. 


THE   NATURE  OF   PROFITS  2^1 

full  advantage  of  the  recent  improvements  in  the  indus- 
trial arts,  and  in  the  methods  of  production  generally,  seem 
to  have  advanced  in  wealth  and  income  more  rapidly  than 
any  other  class  that  has  been  subject  to  the  operation  of 
competition. 

Profits  in  the  Joint-Stock  Company 

Up  to  this  point  w^e  have  been  considering  the  inde- 
pendent business  man,  the  undertaker  who  manages  his 
enterprise  either  alone  or  as  a  member  of  a  partnership. 
In  all  such  concerns  it  is  easy  to  identify  the  business  man. 
Who  or  where  is  the  business  man  in  a  joint  stock  com- 
pany ?     Where  are  the  profits,  and  who  gets  them  ? 

Strictly  speaking,  there  is  no  undertaker  or  business 
man  in  a  corporation.  His  functions  of  ownership, 
responsibility,  and  direction  are  exercised  by  the  whole 
body  of  stockholders  through  the  board  of  directors  and 
other  officers.  It  is  true  that  in  very  many,  probably  in 
most  corporations,  one  or  a  very  few  of  the  largest  stock- 
holders dominate  the  policies  of  the  concern,  and  exercise 
almost  as  much  power  and  authority  as  though  they  were 
the  sole  owners.  Neither  these,  however,  nor  any  other 
officer  in  a  corporation  receives  profits  in  the  same  sense 
as  the  independent  owner  of  a  business.  For  their  active 
services  the  officers  of  the  corporation  are  given  salaries; 
for  the  risks  that  they  undergo  as  owners  of  the  stock  they 
are  compensated  in  the  same  way  as  all  the  other  stock- 
holders, that  is,  through  a  sufficiently  high  rate  of  divi- 
dend. For  example,  in  railroads  the  bonds  usually  pay 
from  four  to  five  per  cent.,  the  stock  from  five  to  six  per 
cent.  The  bonds  represent  borrowed  money,  and  are  se- 
cured by  a  mortgage  on  the  physical  property.  The  stock 
represents  the  money  invested  by  the  owners,  and  is  sub- 
ject to  all  the  risks  of  ownership;  hence  its  holders  require 
the  protection  which  is  afforded  by  the  extra  one  per  cent, 
which  they  obtain  over  that  paid  to  the  bondholders. 


242  DISTRIBUTIVE   JUSTICE 

While  a  corporation  has  no  profits  in  the  sense  of  a 
reward  for  directive  activity  or  a  protection  against  risk, 
it  frequently  possesses  profits  in  the  sense  of  a  surplus 
which  remains  after  costs  and  expenses  of  every  kind  have 
been  defrayed.  These  profits  are  ordinarily  distributed 
pro  rata  among  the  stockholders,  either  outright  in  the 
form  of  an  extra  dividend,  or  indirectly  through  enlarge- 
ment of  the  property  and  business  of  the  company.  They 
are  surplus  gains  or  profits  having  the  same  intermittent 
and  speculative  character  as  the  extra  gains  which  the 
individual  business  man  sometimes  obtains  in  addition  to 
those  profits  which  are  necessary  to  remunerate  him  for 
his  labour,  and  protect  him  against  risks.  They  are  not 
profits  in  the  ordinary  economic  sense  of  the  term. 


CHAPTER  XVI 

THE  PRINCIPAL  CANONS  OF   DISTRIBUTIVE  JUSTICE 

Before  taking  up  the  question  of  the  morahty  of  profits, 
it  will  be  helpful,  if  not  necessary,  to  consider  the  chief 
rules  of  justice  that  have  been  or  might  be  adopted  in  dis- 
tributing the  product  of  industry  among  those  who  par- 
ticipate actively  in  the  productive  process.  While  the 
discussion  is  undertaken  with  particular  reference  to  the 
rewards  of  the  business  man,  it  will  also  have  an  important 
bearing  on  the  compensation  of  the  wage  earner.  The 
morality  of  rent  and  interest  depends  upon  other  principles 
than  those  governing  the  remuneration  of  human  activity; 
and  it  has  been  sufficiently  treated  in  chapters  xii  and 
xiii.  The  canons  of  distribution  applicable  to  our  pres- 
ent study  are  mainly  six  in  number :  arithmetical  equality ; 
proportional  needs;  efforts  and  sacrifices;  comparative 
productivity;  relative  scarcity;  and  human  welfare. 

The  Canon  of  Equality 

According  to  the  rule  of  arithmetical  equality,  all  per- 
sons who  contribute  to  the  product  should  receive  the  same 
amount  of  remuneration.  With  the  exception  of  Bernard 
Shaw,  no  important  writer  defends  this  rule  to-day.  It 
is  unjust  because  it  would  treat  unequals  equally. 
Although  men  are  equal  as  moral  entities,  as  human  per- 
sons, they  are  unequal  in  desires,  capacities,  and  powers. 
An  income  that  would  fully  satisfy  the  needs  of  one  man 
would  meet  only  75  per  cent.,  or  50  per  cent.,  of  the  capac- 
ities of  another.  To  allot  them  equal  amounts  of  income 
would  be  to  treat  them  unequally  with  regard  to  the  requi- 

243 


244  DISTRIBUTIVE   JUSTICE 

sites  of  life  and  self  development.  To  treat  them  un- 
equally in  these  matters  would  be  to  treat  them  unequally 
as  regards  the  real  and  only  purpose  of  property  rights. 
That  purpose  is  welfare.  Hence  the  equal  moral  claims 
of  men  which  admittedly  arise  out  of  their  moral  equality 
must  be  construed  as  claims  to  equal  degrees  of  welfare, 
not  to  equal  amounts  of  external  goods.  To  put  the  mat- 
ter in  another  way,  external  goods  are  not  welfare;  they 
are  only  means  to  welfare;  consequently  their  importance 
must  be  determined  by  their  bearing  upon  the  welfare  of 
the  individual.  From  every  point  of  view,  therefore,  it  is 
evident  that  justice  in  industrial  distribution  must  be 
measured  with  reference  to  welfare  rather  than  with  refer- 
ence to  incomes,  and  that  any  scheme  of  distribution  which 
provided  equal  incomes  for  all  persons  would  be  radically 
unjust. 

Moreover,  the  rule  of  equal  incomes  is  socially  imprac- 
ticable. It  would  deter  the  great  majority  of  the  more 
efficient  from  putting  forth  their  best  efforts  and  turn- 
ing out  their  maximum  product.  As  a  consequence,  the 
total  volume  of  product  would  be  so  diminished  as  to  ren- 
der the  share  of  the  great  majority  of  persons  smaller  than 
it  would  have  been  under  a  rational  plan  of  unequal 
distribution. 

The  Canon  of  Needs 

The  second  conceivable  rule  is  that  of  proportional 
needs.  It  would  require  each  person  to  be  rewarded  in 
accordance  with  his  capacity  to  use  goods  reasonably.  If 
the  task  of  distribution  were  entirely  independent  of  the 
process  of  production,  this  rule  would  be  ideal;  for  it 
would  treat  men  as  equal  in  those  respects  in  which  they 
are  equal;  namely,  as  beings  endowed  with  the  dignity 
and  the  potencies  of  personality;  and  it  would  treat  them 
as  unequal  in  those  respects  in  which  they  are  unequal ; 
that  is,  in  their  desires  and  capacities.     But  the  relation 


THE   PRINCIPAL   CANONS   OF   DISTRIBUTIVE   JUSTICE       245 

between  distribution  and  production  cannot  be  left  out  of 
account.  The  product  is  distributed  primarily  among  the 
agents  of  production  only,  and  it  must  be  so  distributed  as 
to  give  due  consideration  to  the  moral  claims  of  the  pro- 
ducer as  such.  The  latter  has  to  be  considered  not  merely 
as  a  person  possessing  needs,  but  as  a  person  who  has  con- 
tributed something  to  the  making  of  the  product.  Whence 
arise  the  questions  of  relative  efforts  and  sacrifices,  and 
relative  productivity. 

Since  only  those  who  have  contributed  to  the  product 
participate  in  the  distribution  thereof,  it  would  seem  that 
they  should  be  rewarded  in  proportion  to  the  efforts  and 
sacrifices  that  they  exert  and  undergo.  As  an  example  of 
varying  effort,  let  us  take  two  men  of  equal  needs  who 
perform  the  same  labour  in  such  a  way  that  the  first 
expends  90  per  cent,  of  his  energy,  while  the  second  ex- 
pends 60  per  cent.  As  an  example  of  varying  sacrifice, 
let  us  take  the  ditch  digger,  and  the  driver  who  sits  all 
day  on  the  dump  wagon.  In  both  these  examples  the  first 
man  expends  more  painful  exertion  than  the  second.  This 
would  seem  to  make  a  difference  in  their  moral  desert. 
Justice  would  seem  to  require  that  in  each  case  compensa- 
tion should  be  proportionate  to  exertion  rather  than  to 
needs.  At  any  rate,  the  claims  of  needs  should  be  modi- 
fied to  some  extent  in  favour  of  the  claims  of  exertion.  It 
is  upon  the  principle  of  efforts  and  sacrifices  that  we  ex- 
pect our  eternal  rewards  to  be  based  by  the  infinitely  just 
Rewarder.  The  principle  of  needs  is  likewise  in  conflict 
with  the  principle  of  comparative  productivity.  Men  gen- 
erally demand  rewards  in  proportion  to  their  products. 
The  validity  of  this  demand  we  shall  examine  in  a  subse- 
quent paragraph. 

Like  the  rule  of  arithmetical  equality,  the  rule  of  pro- 
portional needs  is  not  only  incomplete  ethically  but  impos- 
sible socially.  Men's  needs  vary  so  widely  and  so  imper- 
ceptibly that  no  human  authority  could  use  them  as  the 


246  DISTRIBUTIVE   JUSTICE 

basis  of  even  an  approximately  accurate  distribution. 
Moreover,  any  attempt  to  distribute  rewards  on  this  basis 
alone  would  be  injurious  to  social  welfare.  It  would  lead 
to  a  great  diminution  in  the  productivity  of  the  more 
honest,  the  more  energetic,  and  the  more  efficient  among 
the  agents  of  production. 

The  Canon  of  Efforts  and  Sacrifice 

The  third  canon  of  distribution,  that  of  efforts  and  sacri- 
fices, would  be  ideally  just  if  we  could  ignore  the  questions 
of  needs  and  productivity.  But  we  cannot  think  it  just  to 
reward  equally  two  men  who  have  expended  the  same 
quantity  of  painful  exertion,  but  who  differ  in  their  needs 
and  in  their  capacities  of  self -development.  To  do  so 
would  be  to  treat  them  unequally  in  the  matter  of  welfare, 
which  is  the  end  and  reason  of  all  distribution.  Conse- 
quently the  principle  of  efforts  and  sacrifices  must  be  modi- 
fied by  the  principle  of  needs.  Apparently  it  must  also 
give  way  in  some  degree  to  the  principle  of  comparative 
productivity.  When  two  men  of  unequal  powers  make 
equal  efforts,  they  turn  out  unequal  amounts  of  product. 
Almost  invariably  the  more  productive  man  believes  that 
he  should  receive  a  greater  share  of  the  product  than  the 
other.  He  believes  that  the  rewards  should  be  deter- 
mined by  productivity. 

It  is  evident  that  the  rule  of  efforts  and  sacrifices,  like 
those  of  equality  and  needs,  could  not  be  universally  en- 
forced in  practice.  With  the  exception  of  cases  in  which 
the  worker  is  called  upon  regularly  to  make  greater  sacri- 
fices owing  to  the  disagreeable  nature  of  the  task,  attempts 
to  measure  the  amounts  of  effort  and  painful  exertion  put 
forth  by  the  different  agents  of  production  would  on  the 
whole  be  little  more  than  rough  guesses.  These  would 
probably  prove  unsatisfactory  to  the  majority.  More- 
over, the  possessors  of  superior  productive  power  would  in 
most  instances  reject  the  principle  of  efforts  and  sacrifices 


THE   PRINCIPAL    CANONS   OF  DISTRIBUTIVE   JUSTICE       247 

as  unfair,  and  refuse  to  do  their  best  work  under  its  opera- 
tion. 

The  three  rules  already  considered  are  formally  ethical, 
inasmuch  as  they  are  directly  based  upon  the  dignity  and 
claims  of  personality.  The  two  following  are  primarily 
physical  and  social ;  for  they  measure  economic  value  rather 
than  ethical  worth.  Nevertheless,  they  must  have  a  large 
place  in  any  system  which  includes  the  factor  of  competi- 
tion. 

The  Canon  of  Productivity 

According  to  this  rule,  men  should  be  rewarded  in  pro- 
portion to  their  contributions  to  the  product.  It  is  open 
to  the  obvious  objection  that  it  ignores  the  moral  claims  of 
needs  and  efforts.  The  needs  and  use-capacities  of  men 
do,  indeed,  bear  some  relation  to  their  productive  capaci- 
ties, and  the  man  who  can  produce  more  usually  needs 
more;  but  the  differences  between  the  two  elements  are  so 
great  that  distribution  based  solely  upon  productivity 
would  fall  far  short  of  satisfying  the  demands  of  needs. 
Yet  we  have  seen  that  needs  constitute  one  of  the  funda- 
mentally valid  principles  of  distribution.  Between  pro- 
ductivity on  the  one  hand  and  efforts  and  sacrifices  on  the 
other,  there  are  likewise  important  differences.  When 
men  of  equal  productive  power  are  performing  the  same 
kind  of  labour,  superior  amounts  of  product  do  represent 
superior  amounts  of  effort;  when  the  tasks  differ  in  irk- 
someness  or  disagreeableness,  the  larger  product  may  be 
brought  into  being  with  a  smaller  expenditure  of  painful 
exertion.  If  men  are  unequal  in  productive  power  their 
products  are  obviously  not  in  proportion  to  their  efforts. 
Consider  two  men  whose  natural  physical  abilities  are  so 
unequal  that  they  can  handle  with  equal  effort  shovels  dif- 
fering in  capacity  by  fifty  per  cent.  Instances  of  this 
kind  are  innumerable  in  industry.  If  these  two  men  are 
rewarded  according  to  productivity,  one  will  get  fifty  per 


248  DISTRIBUTIVE   JUSTICE 

cent,  more  compensation  than  the  other.  Yet  the  surplus 
received  by  the  more  fortunate  man  does  not  represent  any 
action  or  quality  for  which  he  is  personally  responsible. 
It  corresponds  to  no  larger  output  of  personal  effort,  no 
superior  exercise  of  will,  no  greater  personal  desert.  It  is 
based  solely  upon  a  richer  physical  endowment  by  the 
Creator. 

It  is  clear,  then,  that  the  canon  of  productivity  cannot 
be  accepted  to  the  exclusion  of  the  principles  of  needs  and 
efforts.  It  is  not  the  only  ethical  rule  of  distribution.  Is 
it  a  valid  partial  rule?  Superior  productivity  is  fre- 
quently due  to  larger  effort  and  expense  put  forth  in  study 
and  in  other  forms  of  industrial  preparation.  In  such 
cases  it  demands  superior  rewards  by  the  title  of  efforts 
and  sacrifices.  Where,  however,  the  greater  productivity 
is  due  merely  to  higher  native  qualities,  physical  or  mental, 
the  greater  reward  is  not  easily  justified  on  purely  ethical 
grounds.  For  it  represents  no  personal  responsibility, 
will-effort,  or  creativeness.  Nevertheless,  the  great  ma- 
jority of  the  more  fortunately  endowed  think  that  they 
are  unfairly  treated  unless  they  are  recompensed  in  pro- 
portion to  their  products.  Sometimes  this  conviction  is 
due  to  the  fact  that  such  men  wrongly  attribute  their 
larger  product  to  greater  efforts.  In  very  many  cases, 
however,  the  possessors  of  superior  productive  power  be- 
lieve that  they  should  be  rewarded  in  proportion  to  their 
products,  regardless  of  any  other  principle  or  factor. 
Probably  the  true  explanation  of  this  belief  is  to  be  found 
in  man's  innate  laziness.  While  the  prevalence  of  the  con- 
viction that  superior  productivity  constitutes  a  just  title  to 
superior  compensation,  does  create  some  kind  of  a  presump- 
tion in  favour  of  its  correctness,  it  must  be  remembered  that 
presumption  is  not  proof.  Weighing  this  presumption 
against  the  objective  considerations  on  the  opposite  side 
of  the  argument,  we  take  refuge  in  the  conclusion  that 
the  ethical  validity  of  the  canon  of  comparative  product- 


THE   PRINCIPAL   CANONS   OF  DISTRIBUTIVE   JUSTICE       249 

ivity  can  neither  be  certainly  proved  nor  certainly  dis- 
proved. 

Like  the  rules  of  equality,  needs,  and  efforts,  that  of  pro- 
ductivity cannot  be  universally  enforced  in  practice.  It  is 
susceptible  of  accurate  application  among  producers  who 
perform  the  same  kind  of  work  with  the  same  kind  of  in- 
struments and  equipment ;  for  example,  between  two  shov- 
ellers, two  machine  operators,  two  bookkeepers,  two  law- 
yers, two  physicians.  As  a  rule,  it  cannot  be  adequately 
applied  to  a  product  which  is  brought  into  existence 
through  a  combination  of  different  processes.  The  en- 
gine driver  and  the  track  repairer  contribute  to  the  com- 
mon product,  railway  transportation;  the  bookkeeper  and 
the  machine  tender  co-operate  in  the  production  of  hats; 
but  we  cannot  tell  in  either  case  whether  the  first  con- 
tributes more  or  less  than  the  second,  for  the  simple  rea- 
son that  we  have  no  common  measure  of  their  contribu- 
tions. Sometimes,  however,  we  can  compare  the  produc- 
tivity of  individuals  engaged  in  different  processes ;  that  is, 
when  both  can  be  removed  from  the  industry  without  caus- 
ing it  to  come  to  a  stop.  Thus,  it  can  be  shown  that  a 
single  engine  driver  produces  more  railway  transportation 
than  a  single  track  repairer,  because  the  labour  of  the  latter 
is  not  indispensable  to  the  hauling  of  a  given  load  of  cars. 
But  no  such  comparison  can  be  made  as  between  the  whole 
body  of  engine  drivers  and  the  whole  body  of  track  re- 
pairers, since  both  groups  are  indispensable  to  the  produc- 
tion of  railway  transportation.  Again,  a  man  can  be 
shown  to  exert  superior  productivity  because  he  affects 
the  productive  process  at  more  points  and  in  a  more  inti- 
mate way  than  another  who  contributes  to  the  product  in  a 
wholly  different  manner.  While  the  surgeon  and  the  at- 
tendant nurse  are  both  necessary  to  a  surgical  operation, 
the  former  is  clearly  more  productive  than  the  latter. 
When  due  allowance  is  made  for  all  such  cases,  the  fact 
remains  that  in  a  large  part  of  the  industrial  field  it  is 


250  DISTRIBUTIVE   JUSTICE 

simply  impossible  to  determine  remuneration  by  the  rule 
of  comparative  productivity. 

The  Canon  of  Scarcity 

It  frequently  happens  that  men  attribute  their  larger  re- 
wards to  larger  productivity,  when  the  true  determining 
element  is  scarcity.  The  immediate  reason  why  the  engine 
driver  receives  more  than  the  track  repairer,  the  general 
manager  more  than  the  section  foreman,  the  floorwalker 
more  than  the  salesgirl,  lies  in  the  fact  that  the  former 
kinds  of  labour  are  not  so  plentiful  as  the  latter.  Were 
general  managers  relatively  as  abundant  as  section  foremen 
their  remuneration  would  be  quite  as  low;  and  the  same 
principle  holds  good  of  every  pair  of  men  whose  occupa- 
tions and  products  are  different  in  kind.  Yet  the  pro- 
ductivity of  the  general  managers  would  remain  as  great 
as  before.  On  the  other  hand,  no  matter  how  plentiful 
the  more  productive  men  may  become,  they  can  always 
command  higher  rewards  than  the  less  productive  men  in 
the  same  occupation,  for  the  simple  reason  that  their 
products  are  superior  either  in  quantity  or  in  quality. 
Men  engaged  upon  the  more  skilled  tasks  are  likewise  mis- 
taken when  they  attribute  their  greater  compensation  to 
the  intrinsic  excellence  of  their  occupation.  The  fact  is 
that  the  community  cares  nothing  about  the  relative  nobil- 
ity, or  ingenuity,  or  other  inherent  quality  of  industrial 
tasks  or  functions.  It  is  concerned  solely  with  products 
and  results.  As  between  two  men  performing  the  same 
task,  superior  efficiency  receives  a  superior  reward  because 
it  issues  in  a  larger  or  better  product.  As  between  two 
men  performing  different  tasks,  superior  skill  receives  su- 
perior compensation  simply  because  it  can  command  the 
greater  compensation ;  and  it  is  able  to  do  this  because  it  is 
scarce. 

In  most  cases  where  scarcity  is  the  immediate  determi- 
nant of  rewards,  the  ultimate  determinant  is,  partly  at 


THE   PRINCIPAL   CANONS   OF   DISTRIBUTIVE   JUSTICE       25! 

least,  some  kind  of  sacrifice.  One  reason  why  chemists 
and  civil  engineers  are  rarer  than  common  labourers  is  to 
be  found  in  the  greater  cost  of  preparation.  The  scarcity 
of  workers  in  occupations  that  require  no  special  degree 
of  skill  is  due  to  unusual  hazards  and  unpleasantness.  In 
so  far  as  scarcity  is  caused  by  the  uncommon  sacrifices 
preceding  or  involved  in  an  occupation,  the  resulting  higher 
rewards  obviously  rest  upon  most  solid  ethical  grounds. 
However,  some  part  of  the  differences  in  scarcity  is  the 
result  of  unequal  opportunities.  If  all  young  persons  had 
equal  facilities  of  .obtaining  college  and  technical  training, 
the  supply  of  the  higher  kinds  of  labour  would  be  consid- 
erably larger  than  it  now  is,  and  the  compensation  would 
be  considerably  smaller.  Scarcity  would  then  be  deter- 
mined by  only  three  factors;  namely,  varying  costs  of 
training,  varying  degrees  of  danger  and  unattractiveness 
among  occupations,  and  inequalities  in  the  distribution  of 
native  ability.  As  a  consequence,  competition  would  tend 
to  apportion  rewards  according  to  efforts,  sacrifices,  and 
efficiency. 

How  can  we  justify  the  superior  rewards  of  that  scarcity 
which  is  not  due  to  unusual  costs  of  any  sort,  but  merely  to 
restricted  opportunity?  So  far  as  society  is  concerned, 
the  answer  is  simple:  the  practice  pays.  As  to  the  pos- 
sessors of  the  rarer  kinds  of  ability,  they  are  in  about  the 
same  ethical  position  as  those  persons  whose  superior  pro- 
ductivity is  derived  entirely  from  superior  native  endow- 
ment. In  both  cases  the  unusual  rewards  are  due  to  fac- 
tors outside  the  control  of  the  recipients;  to  advantages 
which  they  themselves  have  not  brought  into  existence. 
In  the  former  case  the  decisive  factor  and  advantage  is 
opportunity ;  in  the  latter  it  is  a  gift  of  the  Creator,  Now 
we  have  seen  that  this  sort  of  productivity  cannot  be 
proved  to  be  immoral  as  a  canon  of  distribution;  conse- 
quently the  same  statement  will  hold  good  of  this  sort  of 
scarcity. 


252  DISTRIBUTIVE   JUSTICE 

The  Canon  of  Human  Welfare 

We  say  "  human  "  welfare  rather  than  "  social "  wel- 
fare, in  order  to  make  clear  the  fact  that  this  canon  con- 
siders the  well  being  of  men  not  only  as  a  social  group,  but 
also  as  individuals.  It  includes  and  summarises  all  that 
is  ethically  and  socially  feasible  in  the  five  canons  already 
reviewed.  It  takes  account  of  equality,  inasmuch  as  it 
regards  all  men  as  persons,  as  subjects  of  rights;  and  of 
needs,  inasmuch  as  it  awards  to  all  the  necessary  partici- 
pants in  the  industrial  system  at  least  that  amount  of  re- 
muneration which  will  meet  the  elementary  demands  of 
decent  living  and  self  development.  It  is  governed  by 
efforts  and  sacrifices,  at  least  in  so  far  as  they  are  reflected 
in  productivity  and  scarcity ;  and  by  productivity  and  scar- 
city to  whatever  extent  is  necessary  in  order  to  produce  the 
maximum  net  results.  It  would  give  to  every  producer 
sufficient  remuneration  to  evoke  his  greatest  net  contribu- 
tion to  the  productive  process.  Greatest  "  net  "  contribu- 
tion; for  a  man's  absolute  maximum  product  may  not  al- 
ways be  worth  the  required  price.  For  example :  a  man 
who  for  a  salary  of  2500  dollars  turns  out  a  product  valued 
at  3000  dollars,  should  not  be  given  3000  dollars  in  order 
to  induce  him  to  bring  forth  a  product  worth  3300  dollars. 
In  this  case  a  salary  of  2500  dollars  evokes  the  maximum 
net  product,  and  represents  the  reward  which  would  be  as- 
signed by  the  canon  of  human  welfare.  Once  the  vital 
needs  of  the  individual  have  been  safeguarded,  the  su- 
preme guide  of  the  canon  of  human  welfare  is  the  prin- 
ciple of  maximum  net  results,  or  the  greatest  product  at 
the  lowest  cost. 

It  is  not  contended  here  that  this  canon  ought  never  to 
undergo  modification  or  exception.  Owing  to  the  excep- 
tional hazards  and  sacrifices  of  their  occupation,  a  com- 
bination of  producers  might  be  justified  in  exacting  larger 
compensation  than  would  be  accorded  them  by  the  canon 


THE   PRINCIPAL   CANONS   OF  DISTRIBUTIVE   JUSTICE       253 

of  human  welfare  on  the  basis  of  net  results  in  the  present 
conditions  of  supply  and  scarcity.  Unusual  needs  and 
capacities  might  also  justify  a  strong  group  in  pursuing 
the  same  course.  All  that  is  asserted  at  present  is  that  in 
conditions  of  average  competition  the  canon  of  human 
welfare  is  not  unjust.  And  this  is  all  that  is  necessary  as 
a  preliminary  to  the  discussion  of  just  profits.^ 

lA  very  suggestive  discussion  of  the  psychology,  the  general  prin- 
ciples, and  the  practical  limitations  of  distributive  justice,  will  be 
found  in  an  article  by  Gustav  Schmoller,  entitled,  "  The  Idea  of  Justice 
in  Political  Economy."  It  is  No.  113  in  the  Publications  of  the  Ameri- 
can Academy  of  Political  and  Social  Science. 


CHAPTER  XVII 

JUST   PROFITS   IN    CONDITIONS    OF    COMPETITION 

We  have  seen  that  profits  are  that  share  of  the  product 
of  industry  which  goes  to  the  business  man.  They  com- 
prise that  residual  portion  which  he  finds  in  his  hands 
after  he  has  made  all  expenditures  and  allowances  for 
wages,  salaries,  interest  at  the  prevailing  rate  on  both  his 
own  and  the  borrowed  capital,  and  all  other  proper  charges. 
They  constitute  his  compensation  for  his  labour  of  direc- 
tion, and  for  the  risks  of  his  enterprise  and  capital. 

In  the  opinion  of  most  Socialists,  profits  are  immoral 
because  they  are  an  essential  element  of  an  unjust  indus- 
trial system,  and  because  they  are  not  entirely  based  upon 
labour.  Under  Socialism  the  organising  and  directing 
functions  that  are  now  performed  by  the  business  man, 
would  be  allotted  to  salaried  superintendents  and  man- 
agers. Their  compensation  would  include  no  payment  for 
the  risks  of  capital,  and  it  would  be  fixed  instead  of  inde- 
terminate. Hence  it  would  dififer  considerably  from  pres- 
ent-day profits. 

To  the  assertion  that  profits  are  immoral  a  sufficient  re- 
ply at  this  time  is  that  Socialism  has  already  been  shown  to 
be  impracticable  and  inequitable.  Consequently  the  system 
of  private  industry  is  essentially  just,  and  profits,  being  a 
necessary  element  of  the  system,  are  essentially  legitimate. 
The  question  of  their  morality  is  one  of  degree  not  of  kind. 
It  will  be  considered  under  two  principal  lieads :  the  right 
of  the  business  man  to  obtain  indefinitely  large  profits;  and 
his  right  to  a  certain  minimum  of  profits. 

254 


JUST   PROFITS   IN    CONDITIONS   OF   COMPETITION        255 

The  Question  of  Indefinitely  Large  Profits 

As  a  general  rule,  business  men  who  face  conditions  of 
active  competition  have  a  right  to  all  the  profits  that  they 
can  get,  so  long  as  they  use  fair  business  methods.  This 
means  not  merely  fair  and  honest  conduct  toward  competi- 
tors, and  buyers  and  sellers,  but  also  just  and  humane 
treatment  of  labour  in  all  the  conditions  of  employment, 
especially  in  the  matter  of  wages.  When  these  conditions 
are  fulfilled,  the  freedom  to  take  indefinitely  large  profits 
is  justified  by  the  canon  of  human  welfare.  The  great 
majority  of  business  men  in  competitive  industries  do  not 
receive  incomes  in  excess  of  their  reasonable  needs.  Their 
profits  do  not  notably  exceed  the  salaries  that  they  could 
command  as  hired  managers,  and  generally  are  not  more 
than  sufficient  to  reimburse  them  for  the  cost  of  education 
and  business  training,  and  to  enable  them  to  live  in  reason- 
able conformity  with  the  standard  of  living  to  which  they 
have  become  accustomed. 

Efforts  and  sacrifices  are  reflected  to  some  extent  in  the 
different  amounts  of  profits  received  by  different  business 
men.  When  all  due  allowance  is  made  for  chance,  pro- 
ductivity, and  scarcity,  a  considerable  proportion  of  profits 
is  attributable  to  harder  labour,  greater  risk  and  worry, 
and  larger  sacrifices.  Like  the  principle  of  needs,  that  of 
efforts  and  sacrifices  is  a  partial  justification  of  the  busi- 
ness man's  remuneration. 

Those  profits  which  cannot  be  justified  by  either  of  the 
titles  just  mentioned,  are  ethically  warranted  by  the  prin- 
ciples of  productivity  and  scarcity.  This  is  particularly 
true  of  those  exceptionally  large  profits  which  can  be 
traced  specifically  to  that  unusual  ability  which  is  exempli- 
fied in  the  invention  and  adoption  of  new  methods  and 
processes  in  progressive  industries.  The  receivers  of 
these  large  rewards  have  produced  them  in  competition 
with  less  efficient  business  men.     While  the  title  of  produc- 


256  DISTRIBUTIVE   JUSTICE 

tivity  does  not  entirely  satisfy  the  seeker  for  decisive  ethi- 
cal sanctions,  it  is  stronger  morally  than  any  opposing 
considerations  that  can  be  invoked.  It  is  probably  as 
strong  as  some  other  principles  that  we  have  to  accept  as 
the  best  attainable  in  the  very  difficult  field  of  industrial 
ethics. 

Nevertheless,  it  would  seem  that  those  business  men  who 
obtain  exceptionally  large  profits  could  be  reasonably  re- 
quired to  transfer  part  of  their  gains  to  their  employes  in 
the  form  of  higher  wages,  or  to  the  consumers  in  the  form 
of  lower  prices.  Both  of  these  methods  have  been  fol- 
lowed by  Henry  Ford,  the  automobile  manufacturer. 
Neither  of  them  is  certainly  demanded  by  the  principles  of 
strict  justice;  they  rest  upon  the  feebler  and  less  decisive 
principle  of  general  equity  or  fairness.^  This  concept 
is  less  definite  than  those  of  charity  and  justice,  and  stands 
midway  between  them.  It  comes  into  operation  when  an 
action  is  obligatory  on  stricter  grounds  than  those  of  char- 
ity, and  yet  cannot  with  certainty  be  required  on  grounds 
of  justice.  Notwithstanding  its  vagueness,  it  is  suffi- 
ciently strong  to  make  the  average  conscientious  man  feel 
uncomfortable  if  he  neglects  its  prescriptions  entirely.  It 
has,  therefore,  sufficient  practical  value  to  deserve  a  place 
in  the  ethics  of  distribution.  And  it  seems  to  have  suffi- 
cient application  to  the  problem  before  us  to  justify  the 
statement  that  the  receivers  of  exceptionally  large  profits 
are  bound  in  equity  to  share  them  with  those  persons  who 
have  co-operated  in  producing  and  providing  them,  namely, 
wage  earners  and  consumers. 

In  the  field  of  profits  the  canon  of  human  welfare  is  not 
only  sound  ethically  but  expedient  socially.  It  permits 
the  great  majority  of  business  men  to  obtain,  if  they  can, 
sufficient  remuneration  to  meet  their  reasonable  needs. 
Whether  it  requires  society  to  guarantee  at  least  this 
amount  of  profit-income  is  a  question  that  we  shall  exam- 

1  Cf.  pp.  212,  213  of  Castelein's  "  Philosophia  Moralis  et  Socialis." 


JUST   PROFITS   IN    CONDITIONS   OF   COMPETITION       257 

ine  presently.  It  encourages  efforts,  and  makes  for  the 
maximum  social  product  by  permitting  business  men  to 
retain  all  the  profits  that  they  can  get  in  conditions  of  fair 
competition.  Does  it  forbid  any  attempt  by  society  to 
limit  exceptionally  large  profit-incomes  ?  If  the  limit  were 
placed  very  high,  say,  at  50,000  dollars  per  year,  it  would 
not  apparently  check  the  productive  efforts  of  the  great 
majority  of  business  men,  since  they  never  hope  to  pass 
that  figure.  Whether  it  would  have  a  seriously  discour- 
aging effect  upon  the  activity  and  ambition  of  those  who 
do  hope  to  reach,  and  of  those  who  have  already  reached 
that  level,  is  uncertain.  Among  business  men  who  are 
approaching  or  who  have  passed  the  50,000  dollars  annual 
profit-income  mark,  the  desire  to  possess  more  money  is 
frequently  weaker  as  a  motive  to  business  activity  than  the 
longing  for  power  and  the  driving  force  of  habit.  At  any 
rate,  the  question  is  not  very  practical.  Any  sustained  at- 
tempt to  limit  profits  by  law  would  require  such  extensive 
and  minute  supervision  of  business  that  the  policy  would 
prove  to  be  socially  intolerable  and  unprofitable.  The  es- 
pionage involved  in  the  policy  would  provoke  general  re- 
sentment, and  the  amount  of  profits  that  could  be  diverted 
either  to  the  State  or  to  private  persons  would  be  relatively 
insignificant. 

Thus  far  we  have  been  considering  the  independent  busi- 
ness man  and  business  firm,  not  the  joint  stock  company  or 
corporation.  In  the  latter  form  of  organisation,  the 
labour  of  direction  is  remunerated  by  fixed  salaries  to  the 
executive  officers,  while  the  risks  of  enterprise  and  capital 
are  covered  by  the  regular  dividends  received  by  the  whole 
body  of  stockholders.  Consequently  the  only  revenues 
comparable  to  profits  are  the  surplus  gains  that  remain 
after  wages,  salaries,  interest,  dividends,  rent,  and  all 
other  expenses  and  charges  have  been  met.  These  are  ap- 
portioned through  one  process  or  another  among  the  stock- 
holders.    On  what  ethical  principle  can  they  be  thus  dis- 


258  DISTRIBUTIVE   JUSTICE 

tributed?  The  general  principle  of  productivity,  or  supe- 
rior productivity,  is  the  only  one  available.  If  a  corpora- 
tion which  uses  fair  methods  of  competition  can  obtain 
surplus  gains,  while  the  majority  of  its  competitors  fail  to 
do  so,  the  cause  must  be  sought  in  its  superior  business 
management.  This  superiority  must  be  credited  to  the 
whole  body  of  stockholders,  even  though  the  great  major- 
ity of  them  are  responsible  for  it  only  in  a  very  remote 
way,  through  their  selection  of  the  executive  officers.  The 
stockholders  surely  have  a  better  claim  to  these  surplus 
gains  than  any  other  group  in  the  community.  At  the 
same  time,  they  are,  like  the  independent  business  man, 
bound  by  the  principle  of  equity  to  share  the  surplus  with 
the  labourers  and  consumers. 

The  Question  of  Minimum  Profits 

Has  the  business  man  a  strict  right  to  a  minimum  living 
profit  ?  In  other  words,  have  all  business  men  a  right  to  a 
sufficient  volume  of  sales  at  sufficiently  high  prices  to  pro- 
vide them  with  living  profits  or  a  decent  livelihood?  Such 
a  right  would  imply  a  corresponding  obligation  upon  the 
consumers,  or  upon  society,  to  furnish  the  requisite  amount 
of  demand  at  the  required  prices.  Is  there  such  a  right, 
and  such  an  obligation? 

No  industrial  right  is  absolute.  They  are  all  condi- 
tioned by  the  possibilities  of  the  industrial  system,  and  by 
the  desires,  capacities,  and  actions  of  the  persons  who  enter 
into  industrial  relations  with  one  another.  As  we  shall 
see  later,  this  statement  is  true  even  of  the  right  to  a  liv- 
ing wage.  When  the  industrial  resources  are  adequate, 
all  persons  of  average  ability  who  contribute  a  reasonable 
amount  of  labour  to  the  productive  process  have  a  right  to 
a  decent  livelihood  on  two  conditions :  first,  that  such 
labour  is  their  only  means  of  sustenance ;  and,  second,  that 
their  labour  is  economically  indispensable  to  those  who 
utilise  it  or  its  product.     "  Economically  indispensable  " 


JUST   PROFITS   IN    CONDITIONS   OF   COMPETITION       259 

means  that  the  beneficiary  of  the  labour  would  rather  give 
the  equivalent  of  a  decent  livelihood  for  it  than  go  without 
it.  While  both  these  conditions  are  apparently  fulfilled  in 
the  case  of  the  great  majority  of  wage  earners,  they  are 
only  rarely  realised  with  regard  to  business  men.  In  most 
instances  the  business  man  who  is  unable  to  make  living 
profits  could  become  an  employe,  and  thus  convert  his  right 
to  a  decent  livelihood  into  a  right  to  a  living  wage.  Even 
when  no  such  alternative  is  open  to  him,  he  cannot  claim 
a  strict  right  to  living  profits,  for  the  second  condition 
stated  above  remains  unfulfilled.  The  consuming  public 
does  not  regard  the  business  function  of  such  men  as  eco- 
nomically indispensable.  Rather  than  pay  the  higher 
prices  necessary  to  provide  living  profits  for  the  inefficient 
business  men,  consumers  will  transfer  their  patronage  to 
the  efficient  competitors.  Should  the  retail  grocer,  for 
example,  raise  his  prices  in  the  effort  to  get  living  profits, 
his  sales  would  fall  off  to  such  an  extent  as  to  reduce  his 
profits  still  lower.  While  the  consumers  may  be  willing 
to  fulfil  their  obligation  of  furnishing  living  profits  for  all 
necessary  grocers,  they  are  not  willing,  nor  are  they 
morally  bound,  to  do  so  in  the  case  of  grocers  whose  in- 
ability to  command  sufficient  patronage  at  remunerative 
prices  shows  that  they  are  not  necessary  to  the  community. 
The  consuming  public  does  not  want  to  employ  such  busi- 
ness men  at  such  a  cost. 

Nor  is  the  State  under  obligation  to  ensure  living  profits 
for  all  business  men.  To  carry  out  such  a  policy,  either 
by  enforcing  a  sufficiently  high  level  of  prices,  or  by  sub- 
sidising those  who  fail  to  obtain  living  profits,  would  be  to 
compel  the  public  to  support  inefficiency. 

In  the  foregoing  paragraphs  we  have  assumed  that  the 
inability  of  the  business  men  under  consideration  to  get 
living  profits  is  due  to  their  own  lack  of  capacity  as  com- 
pared with  their  more  efficient  competitors.  When,  how- 
ever,  their   competitors   are  not  more  efficient,   but  are 


26o  DISTRIBUTIVE   JUSTICE 

enabled  to  undersell  through  the  use  of  unfair  methods, 
such  as  adulteration  of  goods  and  oppression  of  labour,  a 
different  moral  situation  is  presented.  Honest  and  hu- 
mane business  men  undoubtedly  have  a  claim  upon  society 
to  protection  against  such  unfair  competition.  And  the 
consumers  are  under  obligation  to  make  reasonable  efforts 
to  withhold  their  patronage  from  those  business  men  who 
practise  dishonesty  and  extortion. 

The  Question  of  Siiperiluous  Business  Men 

Although  we  have  rejected  as  impractical  the  proposal 
to  set  a  legal  limit  to  profit-incomes,  we  have  to  admit  that 
many  of  the  abler  business  men  would  continue  to  do  their 
best  work  even  if  the  profits  that  they  could  hope  to  obtain 
were  considerably  smaller  in  volume.  These  men  hold  a 
strategic  position  in  industry,  inasmuch  as  they  are  not 
subject  to  the  same  degree  of  constant  competition  as  the 
other  agents  of  production.^  Were  the  supply  of  superior 
business  capacity  more  plentiful,  their  rewards  would  be 
automatically  reduced,  and  the  burden  of  profits  resting 
upon  society  would  be  to  that  extent  diminished.  On  the 
other  hand,  the  number  of  mediocre  business  men,  espe- 
cially in  the  distributive  industries,  is  much  larger  than  is 
necessary  to  supply  the  wants  of  the  community.  This 
constitutes  a  second  unnecessary  volume  of  payments  un- 
der the  head  of  profits.  Is  there  no  way  by  which  these 
wastes  can  be  reduced? 

The  volume  of  exceptionally  large  profits  could  be  dimin- 
ished by  an  extension  of  the  facilities  of  technical  and  in- 
dustrial education.  Thus  the  number  of  persons  qualify- 
ing as  superior  business  men  could  be  gradually  increased, 
competition  among  this  class  of  men  would  be  intensified, 
and  their  rewards  correspondingly  diminished. 

The  profits  that  go  to  superfluous  business  men,  espe- 
cially in  the  class  known  as  middlemen,  can  be  largely 

1  Cf .  Hobson,  "  The  Industrial  System,"  chapter  on  "  Ability." 


JUST   PROFITS   IN    CONDITIONS   OF   COMPETITION        26 1 

eliminated  through  combination  and  co-operation.  The 
tendency  to  unite  into  a  single  concern  a  large  number  of 
small  and  inefficient  enterprises  should  be  encouraged  up 
to  the  point  at  which  the  combination  threatens  to  become 
a  monopoly.  That  this  process  is  capable  of  effecting  a 
considerable  saving  in  business  profits  as  well  as  in  capital, 
has  been  amply  demonstrated  in  several  different  lines  of 
enterprise.  As  we  have  seen  in  a  preceding  chapter,  the 
co-operative  movement,  whether  in  banking,  agriculture, 
or  stores,  has  been  distinctly  successful  in  reducing  profits. 
Millions  of  dollars  are  thus  diverted  every  year  from  un- 
necessary profit-receivers  to  labourers,  consumers,  and  to 
the  man  of  small  resources  generally.  Yet  the  co-opera- 
tive movement  is  only  in  its  infancy.  It  contains  the  pos- 
sibility of  eliminating  entirely  the  superfluous  business 
man,  and  even  of  diminishing  considerably  the  excessive 
profits  of  the  exceptionally  able  business  man. 


CHAPTER  XVIII 

THE    MORAL   ASPECT   OF    MONOPOLY 

The  conclusion  was  drawn  in  the  last  chapter  that  the 
surplus  gains  of  corporations  operating  in  conditions  of 
competition,  can  justly  be  retained  by  the  stockholders  as 
the  remuneration  of  exceptional  productive  efficiency.  It 
is,  of  course,  to  be  understood  that  the  proper  allowance 
for  interest  on  the  capital  is  not  necessarily  the  amount 
authorised  by  the  stipulated  rate  of  dividend  on  the  stock, 
but  the  prevailing  or  competitive  rate  of  interest  plus  an 
adequate  rate  of  insurance  against  the  risks  of  the  enter- 
prise. If  the  prevailing  rate  of  interest  is  five  per  cent., 
and  the  risk  is  sufficiently  protected  by  an  allowance  of 
one  per  cent.,  the  fair  rate  of  return  on  the  investment  is 
six  per  cent.  The  fact  that  a  concern  may  actually  award 
its  stockholders  ten  per  cent,  dividends,  has  no  bearing  on 
the  determination  of  the  genuine  surplus.  If  the  actual 
surplus  that  remains  after  paying  all  other  charges  and 
allowing  ten  per  cent,  on  the  stock,  is  only  50,000  dollars, 
whereas  it  would  be  100,000  dollars  with  an  allowance  of 
only  six  per  cent.,  then  the  true  surplus  gains,  or  profits,  are 
the  latter  amount  not  the  former.  No  part  of  the  100,000 
dollars  can  be  justified  as  interest  on  capital.  It  must  all 
find  its  justification  as  profits  proceeding  from  superior 
productivity. 

Bearing  in  mind  this  distinction  between  the  actual  rate 
of  dividend  and  the  proper  allowance  for  interest  on  capi- 
tal, we  take  up  the  question  of  the  morality  of  profits  or 
surplus  gains  in  conditions  of  monopoly. 

262 


THE   MORAL  ASPECT   OF   MONOPOLY  263 

Surplus  and  Excessive  Profits 

Several  of  the  great  industrial  combinations  of  the 
United  States  have  obtained  profits  which  are  commonly 
stigmatised  as  "  excessive."  For  example,  the  Standard 
Oil  Company  paid,  from  1882  to  1906,  an  average  annual 
dividend  of  24.15  per  cent\  on  the  capital  stock,  and  had 
profits  in  addition  at  the  rate  of  about  8  per  cent,  annu- 
ally;^ from  1904  to  1908  the  American  Tobacco  Com- 
pany averaged  19  per  cent,  on  its  actual  investment;  ^  and 
the  United  States  Steel  Corporation  obtained  an  average 
annual  return  of  12  per  cent,  on  its  investment  from  1901 
to  1910.^  A  complete  list  of  the  American  monopolies 
that  have  reaped  more  than  the  competitive  rate  of  return 
on  their  capital  would  undoubtedly  be  a  very  long  one. 

Is  it  possible  to  justify  such  returns?  Has  a  monopoly 
a  right  to  take  surplus  gains?  Let  us  suppose  a  concern 
which  is  getting  15  per  cent,  on  its  investment.  Inas- 
much as  the  risks  are  smaller  than  in  competitive  enter- 
prises, six  per  cent,  is  an  ample  allowance  for  interest. 
Of  the  remaining  9  per  cent.,  4  per  cent.,  we  shall  assume, 
is  derived  from  economies  of  production  as  compared 
with  the  great  majority  of  competitive  concerns.  This 
portion  of  the  surplus,  being  the  reward  of  superior  ef- 
ficiency, may  be  retained  by  the  owners  of  the  monopoly 
quite  as  justly  as  similar  gains  are  taken  by  the  exception- 
ally efficient  corporation  in  conditions  of  competition. 
The  objection  that  the  monopoly  ought  to  share  these  gains 
with  the  public,  since  it  limits  individual  opportunity  in  a 

1  Report  of  the  Commissioner  of  Corporations  on  the  Petroleum 
Industry,  II,  40,  41. 

2  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco  In- 
dustry, II,  26-34. 

3  Report  of  the  Commissioner  of  Corporations  on  the  Steel  Industry, 
I,  51.  According  to  F.  J.  McRae,  the  expert  accountant  for  the  Stanley 
congressional  investigating  committee,  this  concern  secured  40  per  cent, 
on  the  cost  of  its  property. 


264  DISTRIBUTIVE   JUSTICE 

socially  undesirable  way,  has  some  merit,  but  it  can  scarcely 
be  urged  on  grounds  of  strict  justice.  At  most  it  points 
only  to  an  obligation  in  equity. 

By  what  canon  of  distribution  can  the  retention  of  the 
other  5  per  cent,  of  surplus  gain  be  justified?  Not  by  the 
titles  of  needs  and  efforts,  for  these  have  already  been  sat- 
isfied through  the  salaries  paid  to  those  stockholders  who 
perform  labour  in  the  management  of  the  concern.  These 
titles  afford  no  basis  for  any  other  claim  than  that  which 
proceeds  from  labour.  They  cannot  be  made  to  justify 
claims  made  on  behalf  of  capital.  Not  by  the  title  of 
productivity,  for  this  has  already  been  remunerated  in  the 
4  per  cent,  just  considered.  Not  as  interest  on  capital, 
for  ample  allowance  has  already  been  made  under  this 
head  in  the  original  6  per  cent.  As  we  have  seen  in  an 
earlier  chapter,  the  only  reasons  that  give  ethical  support 
to  interest  on  capital  are  the  sacrifice  that  is  involved  in 
some  kinds  of  saving,  the  possibility  that  interest  is  neces- 
sary in  order  to  induce  the  provision  of  sufficient  capital, 
the  certainty  that  the  State  would  be  unable  to  enforce  the 
abolition  of  interest,  and  some  presumptive  considerations. 
Since  all  of  these  reasons  and  ends  are  satisfied  by  the 
competitive  rate  of  interest,  none  of  them  will  justify  the 
exaction  of  more  than  the  competitive  rate.  It  is  not 
possible  to  justify  a  higher  rate  on  either  social  or  indi- 
vidual grounds.  Therefore,  the  only  basis  that  is  left 
upon  which  to  defend  the  retention  of  the  five  per  cent, 
surplus  that  we  are  discussing,  is  the  power  of  appropria- 
tion. The  monopoly  possesses  the  economic  strength  to 
take  this  five  per  cent,  because  it  is  able  to  impose  higher 
than  competitive  prices  upon  the  consumer.  Obviously 
such  power  has  no  greater  ethical  sanction  or  validity  than 
the  pistol  of  the  highwayman.  In  both  cases  the  gains 
are  the  product  of  extortion. 

The  conclusion  that  men  have  no  right  to  more  than  the 
competitive  rate  of  interest,  as  interest,  on  their  capital,  and 


THE   MORAL   ASPECT   OF   MONOPOLY  265 

that  a  monopoly  has  consequently  no  right  to  those  surplus 
gains  that  are  not  produced  by  superior  efficiency,  is  con- 
firmed by  public  opinion  and  by  the  decisions  of  the  courts. 
The  monopolistic  practice  of  taking  more  than  the  usual 
rate  of  returns  on  capital  merely  because  there  exists  the 
power  to  take  it,  is  universally  condemned  as  inequitable. 
In  fixing  the  charges  of  public  service  corporations,  the 
courts  with  practical  unanimity  allow  only  the  rate  of  re- 
turn that  is  obtainable  in  competitive  conditions  of  invest- 
ment. 

The  statement  that  the  monopoly  may  retain  those  sur- 
plus gains  which  are  derived  from  superior  efficiency  as- 
sumes, of  course,  that  fair  wages  have  been  paid  to  em- 
ployes, and  fair  prices  to  the  sellers  of  materials,  and  that 
fair  methods  have  been  used  toward  competitors.  In  so 
far  as  any  of  these  conditions  is  not  met,  the  monopolistic 
concern  has  no  right  to  surplus  gains  of  any  sort.  All 
three  of  the  claims  just  mentioned  are  morally  stronger 
than  the  claim  to  superior  rewards  because  of  superior 
efficiency. 

The  Question  of  Monopolistic  Efficiency 

So  much  for  the  moral  principle.  What  proportion  of 
the  surplus  gains  of  monopoly  are  due  to  extortionate 
prices  rather  than  to  economies  in  production,  cannot  be 
known  even  approximately.  According  to  Justice  Bran- 
deis,  who  is  one  of  the  most  competent  authorities  in 
this  field,  only  a  very  small  part  of  these  gains  are  derived 
from  superior  efficiency.^  Professor  E.  S.  Meade  writes : 
"During  a  decade  [1902-1912]  of  unparalleled  industrial 
development,  the  trusts,  starting  with  every  advantage  of 
large  capital,  well-equipped  plants,  financial  connections, 
and  skilled  superintendence,  have  not  succeeded."  ^     On 

1  Hearings  Before  the  Interstate  Commerce  Committee,  U.  S.  Senate, 
Part  XVI,  pages  1146-1166. 

2  The  Journal  of  Political  Economy,  April,  1912,  p.  366. 


266  DISTRIBUTIVE   JUSTICE 

the  Other  hand,  President  Van  Hise  thinks  that,  "  the 
weight  of  argument  is  strongly  in  favour  of  the  increased 
efficiency  of  large  combinations  of  industry  on  the  aver- 
age." ^  The  difference  of  opinion  existing  among  stu- 
dents of  this  subject  is  due  to  lack  of  adequate  data,  par- 
ticularly to  the  absence  of  such  uniform  and  comprehen- 
sive systems  of  accounting  as  would  be  required  to  provide 
a  basis  for  reliable  general  conclusions.  Opposing  par- 
ticular statements  may  be  equally  true,  because  based  upon 
different  instances;  but  general  statements  are  little  better 
than  guesses. 

Let  us  approach  the  question  from  another  side,  that  of 
prices.  Whenever  the  charges  imposed  by  monopolistic 
concerns  upon  their  products  are  higher  than  those  that 
would  have  prevailed  under  competition,  the  surplus  gains 
are  obviously  to  that  extent  not  due  to  superior  efficiency. 
They  have  their  source  in  the  arbitrarily  made  prices.  The 
Final  Report  of  the  United  States  Industrial  Commission, 
which  was  made  at  the  beginning  of  the  year  1902,  de- 
clared that,  "  in  most  cases  the  combination  has  exerted 
an  appreciable  power  over  prices,  and  in  practically  all 
cases  it  has  increased  the  margin  between  raw  materials 
and  finished  products."  ^  Since  the  cost  of  production  had 
decreased  during  the  preceding  decade,  this  increase  in  the 
margin,  and  the  ensuing  increased  profits,  necessarily  in- 
volved an  increase  in  prices  to  the  consumer.  Taking  the 
period  of  1897-1910,  and  comparing  the  movement  of 
prices  between  eighteen  important  ■  trust-controlled  prod- 
ucts, and  the  same  number  of  important  commodities  not 
produced  by  monopolistic  concerns,  Professor  Meade  con- 
cluded that  the  former  were  sold  at  a  "  much  lower  "  rela- 
tive level  than  the  latter.^  His  computations  were  based 
upon  figures  compiled  by  the  Bureau  of  Labour.     Accord- 

1 "  Concentration  and  Control,"  p.  20. 

2  Page  621. 

8  j-fig  Journal  of  Political  Economy,  April,  1912,  p.  363. 


THE   MORAL   ASPECT   OF   MONOPOLY  267 

ing  to  the  Commissioner  of  Corporations,  the  Standard 
Oil  Company  "  has  taken  advantage  of  its  monopoly  power 
to  extort  prices  much  higher  than  would  have  existed  under 
free  competition."  ^  The  same  authority  shows  that  the 
American  Tobacco  Company  used  its  power  to  obtain  con- 
siderably more  than  competitive  prices  on  some  of  its 
products.^  Excessive  prices,  as  measured  by  the  stand- 
ards of  competition,  were  also  established  by  the  United 
States  Steel  Corporation,  the  American  Sugar  Refining 
Company,  and  the  combinations  in  meat  packing  and  in 
lumber.^ 

A  safe  statement  would  probably  be  that  the  greater  part 
of  the  surplus  gains  of  the  most  conspicuous  American 
monopolies  have  been  due  to  excessive  prices  rather  than  to 
economies  of  production. 

Let  us  turn  from  the  subject  of  unjust  monopoly  gains 
to  that  of  unfair  methods  used  by  the  great  combinations 
toward  their  competitors.  These  methods  are  mainly 
three :  discriminative  underselling,  exclusive-selling  con- 
tracts, and  advantages  in  transportation. 

Discriminative  Underselling 

The  first  of  these  practices  is  exemplified  when  a 
monopoly  sells  its  goods  at  unprofitably  low  rates  in  com- 
petitive territory,  while  maintaining  higher  prices  else- 
where; and  when  it  offers  at  very  low  prices  those  kinds 
of  goods  which  are  handled  by  competitors,  while  holding 
at  excessively  high  prices  the  kinds  of  commodities  over 
which  it  has  exclusive  control.  Both  forms  of  the  practice 
seem  to  have  been  extensively  used  by  most  of  the  monopo- 
listic concerns  of  America.^  The  Standard  Oil  Company 
has  been  perhaps  the  most  conspicuous  offender  in  this 

1  Report  on  the  Petroleum  Industry,  II,  74. 

2  Report  on  the  Tobacco  Industry,  II,  27. 
8Cf.  Van  Hise,  op.  cit.,  pp.  140,  149.  I53.  I59- 

*  Final  Report  of  the  Industrial  Commission,  pp.  660-662. 


i268  DISTRIBUTIVE   JUSTICE 

field. ^  This  practice  is  unjust  because  it  violates  the  fun- 
damental moral  principle  that  a  man  has  a  right  to  pursue 
a  lawful  good  without  hindrance  through  illicit  means. 
Among  the  illicit  means  enumerated  by  the  moral  theo- 
logians are  force,  fraud,  deception,  lying,  slander,  intimida- 
tion, and  extortion.^ 

The  illicit  means  employed  in  discriminative  under- 
selling are  chiefly  extortion  and  deception.  If  the  very 
low  prices  at  which  the  monopoly  sells  in  the  field  which 
contains  competitors  were  maintained  outside  of  that  field 
also,  and  if  they  were  continued  not  merely  until  the  inde- 
pendent concerns  were  driven  out  of  business,  but  indefi- 
nitely afterward,  no  injustice  would  be  done  the  latter. 
For  no  man  has  a  natural  right  to  any  particular  business. 
If  a  powerful  concern  can  eliminate  competitors  through 
low  prices  made  possible  by  superior  efficiency,  the  com- 
petitors are  not  unjustly  treated.  They  have  no  more 
just  cause  of  complaint  than  the  inefficient  grocer  whose 
custom  is  attracted  from  him  by  other  and  more  efficient 
merchants.  The  offence  is  at  the  worst  contrary  to 
charity.  But  when  the  monopoly  maintains  the  low  and 
competition-eliminating  prices  only  locally  and  temporarily, 
when  it  is  enabled  to  establish  and  continue  these  prices 
only  because  it  sells  its  goods  at  extortionate  rates  else- 
where, the  latter  prices  are  evidently  the  instrument  or 
means  by  which  the  competitors  are  injured  and  eliminated. 
In  that  case  the  monopoly  violates  the  right  of  the  com- 
petitors to  pursue  a  lawful  good  immune  from  unfair 
interference.  The  lawful  good  is  a  livelihood  from  this 
kind  of  business;  and  the  illicit  interference  is  the  unjust 
prices  maintained  outside  the  competitive  field. 

In  the  preceding  paragraph  we  have  assumed  that  the 
extortionate  prices  are  operative  at  the  same  time  as  the 
excessively  low  prices,  but  in  a  different  place.     Suppose 


1  Report  on  the  Petroleum  Industry,  I,  328-332 
2Cf.  Lehmkuhl,  "  Theologia  Moralis,"  I,  No.  ( 


974. 


THE   MORAL   ASPECT   OF   MONOPOLY  269 

that  the  former  are  imposed  only  after  the  independent 
concerns  are  eliminated.  The  injustice  to  the  competitors 
remains  the  same  as  in  the  preceding  case.  Although  the 
extortionate  prices  are  later  in  time,  they  are  the  instru- 
mental cause  of  the  destructive  low  prices  through  which 
the  competitors  were  driven  out  of  business.  If  the 
owners  of  the  monopoly  were  not  certain  of  their  ability 
to  establish  the  subsequent  extortionate  prices,  they  would 
not  have  put  into  effect  the  unprofitably  low  prices.  Hence 
there  is  a  true  causal  connection  between  the  former  and 
the  latter.  Although  the  connection  is  mainly  psychical, 
through  the  consciousness  of  the  monopoly  owners,  it  is 
none  the  less  real  and  effective.  Its  practical  effectiveness 
is  seen  in  the  fact  that  the  subsequent  possibility  of  impos- 
ing extortionate  prices  will  induce  men  to  lend  the  mo- 
nopoly money  to  carry  on  the  process  of  exterminating 
competition.  The  process  is  maintained  by  means  of  the 
extortionate  prices  quite  as  effectively  as  though  the  two 
things  were  simultaneous. 

In  so  far  as  the  patrons  of  the  independent  concerns  are 
deceived  into  expecting  that  the  very  low  prices  will  be 
permanent,  and  in  so  far  as  this  impression  causes  them  to 
withdraw  their  patronage  from  the  independents,  the  latter 
are  injured  through  another  illicit  means,  namely,  decep- 
tion. The  competitors  have  a  right  not  to  be  deprived  of 
their  customers  through  imposture. 

What  is  the  measure  of  extortionate  prices  in  this  con- 
nection? How  can  we  know  that  the  high,  competition- 
eliminating  prices  are  really  extortionate?  There  are  only 
two  possible  tests  of  just  price.  The  first  is  the  proper 
cost  of  production, —  fair  wages  to  labour,  fair  prices  for 
materials,  and  fair  interest  on  capital.  If  the  monopoly 
does  not  raise  prices  above  this  level,  it  obviously  does  not 
impose  extortionate  prices,  nor  inflict  injustice  upon  the 
eliminated  competitor.  Moreover,  if  the  monopoly  has 
introduced  economies  of  production  it  may,  as  we  have 


270  DISTRIBUTIVE   JUSTICE 

seen,  justly  charge  prices  somewhat  above  the  cost-of- 
production  level.  But  it  may  not  raise  them  above  the 
level  that  would  have  prevailed  under  competition.  This 
is  the  second  test  of  just  price.  No  possible  justification 
can  be  found,  except  one  to  be  mentioned  presently,  for 
charging  the  consumers  higher  prices  than  they  could  have 
obtained  under  competitive  conditions.  At  such  prices  the 
monopoly  will  be  able  to  secure  the  prevailing  rate  of  in- 
terest on  its  capital,  and  all  the  surplus  gains  that  proceed 
from  superior  efficiency.  A  higher  scale  of  prices  will  be, 
therefore,  extortionate,  and  the  competitors  who  are  elim- 
inated through  its  instrumentality  will  be  the  victims  of 
injustice.-^ 

The  exception  alluded  to  above  occurs  when  the 
monopoly  uses  the  excess  which  it  obtains  over  the  com- 
petitive price  to  pay  fair  wages  to  those  labourers  who 
were  insufficiently  compensated  in  competitive  conditions. 
In  such  a  case  the  eliminated  competitors  would  have  no 
just  claim  against  the  monopoly;  for  their  elimination  took 
place  in  the  just  interest  of  the  producers.  The  case, 
however,  is  purely  academic,  since  the  discriminative 
underselling  practised  by  our  monopolistic  concerns  has  not 
been  impelled  by  any  such  motive,  nor  has  it  achieved  any 
such  result. 

Exclusive-Sales  Contracts 

The  second  unfair  method  employed  by  monopolies 
toward  competitors  is  that  of  exclusive-selling  contracts, 

1  It  may  be  of  interest  to  recall  the  mediaeval  attitude  toward  monop- 
olistic exactions,  as  summarily  stated  by  St.  Antoninus,  who  was  arch- 
bishop of  Florence  in  the  first  half  of  the  fifteenth  century:  "When 
monopolist  merchants  agree  together  to  preserve  a  fixed  price,  so  as  to 
secure  an  unlimited  profit,  they  are  guilty  of  sinful  trading."  ?Ie 
maintained  that  they  should  not  sell  above  the  market  price,  and  should 
be  prevented  from  so  doing  by  law.  See  his  "  Summa  Theologica," 
III,  8,  3,  iv,  and  II,  i,  16,  ii.  Present  day  moral  theologians  lay  down 
the  same  doctrine,  and  in  addition  condemn  the  characteristic  monopo- 
listic methods  as  unjust.  See  Tanquerey,  "  De  Justitia,"  nos.  776,  777; 
Lehmkuhl,  "Theologia  Moralis,"  vol.  I,  no.  11 19. 


THE   MORAL   ASPECT   OF   MONOPOLY  27I 

sometimes  called  the  "  factors  agreement."  It  requires 
the  dealer,  merchant,  or  jobber  to  refrain  from  selling  the 
goods  produced  by  independent  concerns,  on  penalty  of 
being  refused  the  goods  produced  by  the  monopoly.  The 
merchant  is  compelled  to  choose  between  the  less  important 
line  of  wares  to  be  had  from  the  former,  and  the  more 
important  line  obtainable  from  the  latter.  He  will  not  be 
permitted  to  handle  both.  "  Here  is  somebody  who  has 
been  buying  goods,  let  us  say,  by  way  of  illustration,  from 
the  American  Tobacco  Company,  and  a  rival  producer 
comes  in  whom  the  merchant  likes  to  patronise.  He  buys 
goods  for  a  time  from  the  rival,  and  an  agent  of  the  trust 
sends  him  a  note  to  the  effect  that  he  must  not  buy  any 
more  from  that  rival  corporation;  that,  if  he  does  so,  the 
trust  will  give  all  of  its  own  goods,  some  of  which  the 
merchant  is  obliged  to  have,  to  another  agent.  That  will 
probably  bring  him  to  terms."  *  By  this  method  the  inde- 
pendent manufacturer  can  be  deprived  of  sufficient  pat- 
ronage to  injure  him  seriously,  and  perhaps  to  drive  him 
out  of  business. 

This  process  is  one  of  intimidation  brought  to  bear  upon 
the  merchant.  Through  fear  of  loss  he  is  compelled  to 
discontinue  selling  the  goods  of  the  competing  manufac- 
turer. It  is  a  kind  of  secondary  boycott.  As  such,  it  is 
an  unreasonable  interference  with  the  liberty  of  the  mer- 
chant unless  its  object  is  to  compel  him  to  do  something 
that  he  may  be  reasonably  required  to  do.  In  the  case 
that  we  are  considering,  the  object  of  the  pressure  is  not 
of  that  character;  for  to  drive  the  rival  manufacturer  out 
of  business,  or  to  assist  in  his  expulsion,  is  not  a  reason- 
able thing.  The  exclusive-selling  contract  which  is  forced 
upon  the  merchant  is  quite  as  unreasonable  as  though  its 
purpose  were  to  prevent  him  from,  say,  patronising  manu- 
facturers having  red  hair.  Being  thus  unreasonable,  thus 
injurious  to  individual  liberty,  it  violates  not  only  the  law 

1  Clark,  "  The  Problem  of  Monopoly,"  p.  35. 


2/2  DISTRIBUTIVE   JUSTICE 

of  charity  but  that  of  justice.  It  transgresses  the  mer- 
chant's right  to  enter  reasonable  contracts  with  the  rival 
manufacturer,  and  if  it  results  in  a  pecuniary  loss  to  the 
former  it  is  an  invasion  of  his  rights  of  property.  It  like- 
wise violates  the  rights  of  the  competitive  manufacturer, 
since  it  is  among  the  unfair  means  which  may  not  be  used 
to  prevent  a  man  from  pursuing  a  legitimate  good.  It  is 
an  unfair  means  because  it  involves  unreasonable  intimida- 
tion, uncharity,  and  injustice  toward  the  merchant.  When 
the  independent  manufacturer  is  injured  through  such  an 
instrumentality,  he  suffers  injustice  quite  as  certainly  at  the 
hands  of  the  monopoly  as  though  his  property  were 
destroyed  through  the  strong-arm  methods  of  hired  thugs. 

Discriminative  Transportation  Arrangements 

Concerning  the  third  unfair  method,  discriminative  ad- 
vantages in  transportation,  the  United  States  Industrial 
Commission  declared :  "  It  is  incontestable  that  many  of 
the  great  industrial  combinations  had  their  origin  in  rail- 
road discrimination.  This  has  been  emphasised  many 
times  in  the  history  of  the  Standard  Oil  Company,  and  of 
the  great  monopolies  dealing  in  live  stock,  dressed  beef, 
and  other  products."  ^  The  American  Sugar  Refining 
Company  has  been  several  times  convicted  of  receiving 
illegal  favours  from  railroads,  and  has  paid  in  fines  thou- 
sands upon  thousands  of  dollars.  Sometimes  the  monop- 
oly has  openly  been  accorded  lower  freight  rates  than  its 
competitors,  and  sometimes  it  has  paid  the  regular  charges, 
and  then  received  back  a  part  of  them  as  a  refund  or 
rebate.  At  one  time  the  Standard  Oil  Company  obtained 
rebates  not  only  on  its  own  shipments,  but  on  those  of  its 
rivals !  ^ 

Special  advantages  of  this  sort  necessarily  involve  in- 
justice to  the  competitors  of  the  monopoly.     If  the  low 

1  Final  Report,  p.  361. 

2  Report  on  the  Petroleum  Industry,  pp.  22,  23. 


THE   MORAL   ASPECT   OF   MONOPOLY  2/3 

rates  given  to  the  monopolistic  concern  are  a  sufficiently 
high  price  for  the  service  of  carrying  freight,  the  higher 
charges  imposed  upon  the  competing  concerns  are  extor- 
tionate; if  the  former  rates  are  unprofitably  low,  the  dif- 
ference between  sufficient  and  insufficient  freight  charges 
is  made  up  by  the  independent  concerns.  In  the  former 
case  the  independents  pay  the  railroad  too  much;  in  the 
latter  case  they  bear  burdens  that  should  properly  rest  upon 
the  monopoly.  The  monopolistic  concern  is  partly  respon- 
sible for  this  injustice  inasmuch  as  it  urges  and  often  in- 
timidates the  railroad  to  establish  the  discriminating  rates. 
All  three  of  the  practices  that  we  have  been  considering 
are  universally  condemned  by  public  sentiment.  They  are 
all  likewise  under  the  ban  of  statutory  law.  The  first  two 
have  recently  received  detailed  and  explicit  prohibition  in 
the  Clayton  Anti-Trust  Act. 

Natural  Monopolies 

Up  to  this  point  we  have  been  dealing  with  private  and 
artificial  monopolies.  We  turn  now  to  consider  briefly 
those  natural  and  quasi-public  monopolies  which  are  either 
tacitly  or  explicitly  recognised  as  monopolies  by  public 
authority,  and  whose  charges  are  to  a  greater  or  less  extent 
regulated  by  some  department  of  the  State.  Such  are,  for 
example;  steam  railroads  and  municipal  utilities.  When 
the  charges  made  for  the  services  of  these  corporations  are 
adequately  regulated  by  public  authority,  the  owners  of 
such  concerns  will  have  a  right  to  all  the  surplus  gains  that 
they  can  obtain.  In  that  case  a  contract  is  made  between 
the  corporation  and  the  public  which  is  presumably  fair  to 
both  parties,  and  which  represents  the  social  estimate  of 
what  is  just.  If  the  public  authorities  have  not  sufficiently 
safeguarded  the  interests  of  the  people,  if  they  have  per- 
mitted the  charges  to  be  so  high  as  to  provide  excessive 
returns  for  the  corporation,  the  latter  is  under  no  moral 
obligation  to  refrain  from  reaping  the  full  benefit  of  the 


^74  DISTRIBUTIVE  JUSTICE 

State's  negligence  or  incompetence.  If,  however,  the  un- 
duly high  rates  have  been  brought  about  through  bribery, 
extortion,  or  deception  practised  by  the  corporation,  the 
inequitable  contract  thus  arranged  will  not  justify  the 
surplus  gains  thus  produced.  For  example;  if  the  cor- 
poration deliberately  and  effectively  conceals  the  real  value 
of  its  property  through  stock  watering,  and  thus  misleads 
the  public  authority  into  permitting  charges  which  return 
twelve  instead  of  six  per  cent,  on  the  actual  investment, 
the  corporation  cannot  forthwith  justly  claim  the  surplus 
gain  represented  by  the  extra  six  per  cent. 

When  the  public  authorities  either  fail  entirely  to  regu- 
late charges,  or  do  so  only  spasmodically  and  partially,  the 
quasi-public  monopoly  will  not  necessarily  have  a  right  to 
all  the  obtainable  surplus  gains.  For  a  long  time  the  ex- 
press companies  of  the  United  States  were  permitted  to 
exact  what  charges  they  pleased,  and  even  yet  the  rates  on 
some  of  our  railroads  are  not  adequately  regulated  by  the 
State.  In  such  cases  the  charges  imposed  on  the  public 
are  not  an  adequate  expression  of  the  social  estimate  of 
justice,  nor  an  adequate  basis  of  legitimate  surplus  gains. 
In  the  absence  of  sufficient  public  regulation,  a  quasi-public 
monopoly  is  morally  bound  to  fix  its  charges  at  such  a  level 
as  will  enable  it  to  obtain  only  the  prevailing  rate  of  in- 
terest on  the  investment,  and  such  surplus  gains  as  it  can 
produce  through  exceptional  efficiency.  In  all  such  cases 
the  public  service  corporation  is  in  the  same  moral  posi- 
tion as  the  artificial  monopoly:  it  has  no  possible  basis  ex- 
cept superior  efficiency  for  claiming  or  getting  any  returns 
above  the  competitive  rate  of  interest  on  its  capital.  Its 
only  possible  reason  for  obtaining  more  is  the  fact  that  it 
has  the  power  to  take  more.  This  fact  has  obviously  no 
moral  validity. 


THE   MORAL   ASPECT   OF   MONOPOLY  275 

Methods  of  Preventing  Monopolistic  Injustice 

How  shall  the  injustices  of  monopoly  be  prevented  in 
the  future?  So  far  as  quasi-public  monopolies  are  con- 
cerned, all  students  of  the  subject  are  now  agieed  that 
these  should  be  permitted  to  exist  under  adequate  govern- 
mental regulation  as  to  prices  and  service.  The  reason  is 
that  in  this  field  successful  and  useful  competition  is  im- 
possible. Public  utility  corporations  are  natural  monopo- 
lies, and  must  be  dealt  with  by  the  method  of  regulation 
until  such  time  as  they  are  brought  under  the  ownership 
and  operation  of  the  State.  With  regard  to  the  great  in- 
dustrial combinations  which  have  become  or  threaten  to 
become  artificial  monopolies,  there  exists  substantial  agree- 
ment among  competent  authorities  on  one  point,  and  dis- 
agreement on  another  point.  All  admit  that  the  unfair 
competitive  methods  described  in  an  earlier  part  of  this 
chapter  should  be  stringently  prohibited.  No  possible 
reason  can  be  found  for  legal  toleration  of  these  or  any 
other  discriminative,  uncharitable,  or  unjust  practices  on 
the  part  of  stronger  toward  weaker  competitors. 

The  disagreement  among  students  of  monopoly  relates 
to  the  fundamental  question  of  permitting  or  not  permit- 
ting these  combinations  to  exist.  According  to  the  first 
theory,  of  which  Mr.  Justice  Brandeis  is  the  most  dis- 
tinguished exponent,  no  new  industrial  monopolies  should 
be  permitted,  and  those  that  we  have  should  be  dissolved. 
The  basis  of  this  theory  is  the  assumption  that  all  the 
economies  and  all  the  productive  efficiency  found  in  mo- 
nopolistic concerns  can  be  developed  and  maintained  in 
smaller  business  organisations,  and  that  the  method  of 
prevention  and  dissolution  is  the  simplest  means  of  pro- 
tecting the  public  against  the  danger  of  extortionate 
monopoly  prices.  Attention  has  been  called  in  a  preceding 
paragraph  to  the  impossibility  of  determining  whether  the 
great   monopolistic    combinations   have    on    the    average 


276  DISTRIBUTIVE   JUSTICE 

shown  themselves  to  be  more  efficient  than  concerns  sub- 
ject to  active  and  adequate  competition.  It  is  significant, 
however,  that  in  the  discussion  of  this  subject  which  took 
place  at  the  twenty-sixth  annual  meeting  of  the  American 
Economic  Association,  at  Minneapolis  in  1913,  the  econo- 
mists who  participated  were  practically  unanimous  in  hold- 
ing that  the  superior  efficiency  of  the  trusts  had  not  been 
demonstrated,  but  was  a  matter  of  serious  doubt,  and  that 
the  burden  of  proof  of  their  alleged  superiority  had  been 
definitely  shifted  upon  those  who  maintained  the  affirma- 
tive.-^ Probably  the  great  majority  of  the  whole  body  of 
American  economists  would  share  these  conclusions. 

On  the  other  hand,  the  opponents  of  prevention  and 
dissolution,  of  whom  Mr.  George  W.  Perkins  is  probably 
the  most  conspicuous,  point  to  the  obvious  economies  of 
large-scale  over  small-scale  production,  and  contend  that 
these  are  sufficient  reason  for  permitting  and  even  encour- 
aging the  great  combinations.  The  power  to  oppress  com- 
petitors by  unjust  methods  of  business,  and  the  public  by 
extortionate  prices,  should  be  kept  under  rigid  control  by 
supervision,  and  government  regulation  of  maximum 
prices.  But  the  arguments  advanced  in  favour  of  this 
position  are  never  conclusive.  Most  of  its  advocates  fail 
to  realise,  or  at  least  to  take  adequately  into  account,  the 
difference  between  large-scale  production  and  production 
by  a  monopoly.  While  the  large  plant  and  the  large  busi- 
ness organisation  have  in  many  lines  of  manufacture  and 
trade  a  considerable  advantage  over  the  small  plant  and  the 
small  organisation,  there  is  not  a  scintilla  of  evidence  to 
show  that  the  efficiency  of  magnitude  increases  indefinitely 
with  magnitude.  There  is  no  proof  that  the  maximum 
efficiency  is  reached  only  with  the  maximum  size  of  the 
business  unit.  On  the  contrary,  all  the  evidence  that  we 
have  points  to  the  conclusion  that  in  every  field  of  indus- 
trial and  commercial  enterprise,  all  the  economies  of  mag- 
1 "  Papers  and  Proceedings,"  pp.  158-194. 


THE   MORAL   ASPECT   OF   MONOPOLY  277 

nitude  and  of  combination  are  obtained  long  before  the 
concern  becomes  a  monopoly.  There  is  not  an  industry 
of  any  importance  in  the  United  States  in  which  all  the 
advantages  of  bigness  and  concentration  cannot  be  made 
operative  in  concerns  that  control  as  low  as  twenty-five  per 
cent,  of  the  total  product.  The  highest  economy  and  effi- 
ciency can  be  obtained  without  monopoly. 

Indeed,  this  is  admitted  by  the  more  reasonable  advo- 
cates of  the  regulation  and  price-fixing  policy.  While 
maintaining  that  "  concentration  must  go  far  in  order  to 
give  the  maximum  of  efficiency,"  President  Van  Hise  does 
not  hold  "  that  it  should  go  to  the  extent  that  the  element 
of  monopoly  enters  " ;  and  he  would  have  the  law  "  declare 
restraint  of  trade  unreasonable  that  gets  to  monopoly," 
and  fix  the  definite  per  cent,  of  business  control  which 
constitutes  a  monopoly.^  We  are  justified,  therefore,  in 
concluding  that  the  theory  of  prevention  and  dissolution 
(provided  that  the  competing  units  are  not  made  so  small 
as  to  destroy  the  certain  economies  of  magnitude)  rather 
than  the  theory  of  permission  and  regulation,  indicates 
the  sound  economic  and  social  policy  of  dealing  with 
monopolies. 

Legalised  Price  Agreements 

President  Van  Hise  advocates  the  regulation  policy  in 
a  modified  form.  In  substance  his  view  is  that,  while  no 
corporation  should  be  permitted  to  control  the  greater  part 
of  any  product,  monopolistic  price-agreements  should  be 
sanctioned  and  regulated  by  law.  No  amount  of  restric- 
tive legislation,  he  maintains,  can  secure  universal  compe- 
tition in  the  matter  of  prices.  Experience  shows  that  the 
destructive  results  of  cut-throat  competition  compel  the 
more  powerful  competitors  to  make  price  agreements  in 
some  lines  of  business.^  For  example;  all  the  retail 
grocers  in  a  city  are  often  found  selling  certain  staples  at 

1  Op.  cit.,  pp.  20,  251.  2  Op.  cit.,  pp.  254-265. 


278  DISTRIBUTIVE   JUSTICE 

a  uniform  price  for  long  periods  of  time.  Agreements  of 
this  sort  should,  in  the  opinion  of  President  Van  Hise,  be 
formally  permitted  by  law,  with  the  proviso  that  a  govern- 
ment commission  should  fix  the  maximum  and  possibly  the 
minimum  limits.  And  he  contends  that  the  task  of  fixing 
fair  maximum  and  minimum  prices  would  be  much  less 
difficult  than  is  commonly  supposed,  and  that  it  would  be 
much  simpler  and  easier  than  the  task  of  regulating  rail- 
way freight  rates. 

Whatever  may  be  the  merits  of  this  plan,  it  is  not  likely 
to  be  embodied  in  legislation  in  the  near  future.  So  far  as 
we  can  see  now,  the  American  people  are  committed  to  the 
policy  of  endeavouring  to  restore  genuine  competition  by 
prohibiting  those  predatory  practices  to  which  the  great 
monopolies  mainly  owe  their  existence.  The  attempt  will 
be  made  to  give  competition  a  fair  opportunity  to  prevent 
both  monopolistic  control  of  products  and  monopolistic 
fixing  of  prices.  Competition  has  not  enjoyed  any  such 
opportunity  during  the  last  quarter  of  a  century.  If  this 
attempt  should  fail  after  a  thorough  trial,  the  time  will  be 
at  hand  for  the  regulation  of  prices  by  the  government. 
Until  that  time  has  arrived  (let  us  hope  that  it  never  will 
arrive)  the  State  will  not,  and  should  not,  embark  upon 
such  a  large  and  difficult  experiment. 


CHAPTER  XIX 

THE   MORAL   ASPECT   OF   STOCK   WATERING 

In  the  last  chapter  we  saw  that  a  monopoly  has  no  right 
to  gains  in  excess  of  the  competitive  rate  of  interest  on  its 
capital,  except  in  so  far  as  these  have  been  derived  from 
superior  efficiency.  Now  superior  efficiency  is  clearly 
present  whenever  the  monopolistic  concern  obtains  surplus 
gains  by  selling  its  product  at  competitive  prices,  or  at  the 
prices  that  would  have  prevailed  under  competition.  Evi- 
dently the  surplus  in  such  a  case  is  due  to  the  greater  pro- 
ductivity of  the  monopoly  as  compared  with  the  average 
productivity  of  competitive  concerns.  When,  however, 
the  monopoly  charges  prices  above  the  competitive  level, 
its  surplus  gains  cannot  all  be  attributed  to  unusual  effi- 
ciency. A  part  if  not  all  of  them  are  the  result  simply  of 
the  power  to  take ;  consequently  they  are  immoral. 

One  of  the  means  by  which  some  monopolies  have  ob- 
tained unjust  surplus  gains  is  overcapitalisation,  or  stock- 
watering.  This  practice  is  rarely  found  in  businesses  that 
are  subject  to  normal  competition.  So  far  as  the  con- 
sumer is  concerned,  a  corporation  that  cannot  fix  prices 
arbitrarily  has  nothing  to  gain  by  inflating  its  capital. 
Unless  it  develops  exceptional  efficiency,  it  cannot  hope  to 
obtain  more  than  the  competitive  rate  of  interest  on  its 
capital;  if  it  does  become  exceptionally  efficient,  it  can  take 
the  resulting  surplus  gains  without  arousing  public  resent- 
ment or  criticism.  In  either  case,  it  will  have  no  sufficient 
reason  to  deceive  the  public  by  exaggerating  the  amount  of 
its  capital.  When  a  competitive  concern  does  water  its 
stock,  the  object  will  be  to  defraud  investors.     If  the 

279 


280  DISTRIBUTIVE   JUSTICE 

scheme  is  successful  the  unjust  surplus  gains  are  taken  by 
one  set  of  stockholders  from  another  set  of  stockholders. 
Whenever  anything  of  this  sort  occurs,  the  deceptive  de- 
vices employed  are  so  crude  and  obvious  that  they  present 
no  special  problem  for  the  moralist.  Even  as  practised  by 
monopolies,  stockwatering  raises  no  principle  that  has  not 
been  already  discussed.  It  does,  however,  create  some 
special  difficulties  in  the  matter  of  applying  the  moral  prin- 
ciples involved.  Consequently,  it  may  with  advantage  be 
considered  in  a  separate  chapter. 

The  general  definition  of  overcapitalisation  is  capitalisa- 
tion in  excess  of  the  proper  valuation  of  a  business.  What 
is  the  measure  of  proper  valuation?  According  to  many 
corporation  directors,  it  is  earning  power.  If  a  concern 
is  able  to  get  the  prevailing  rate  of  interest  on  a  capitalisa- 
tion of  ten  million  dollars,  that  is  the  proper  capitalisation 
for  that  concern,  even  though  the  money  actually  invested 
might  not  have  exceeded  five  million  dollars.  In  the 
opinion  of  most  other  persons,  however,  a  company  is  over- 
capitalised when  the  face  value  of  its  securities  is  greater 
than  the  money  put  into  the  business  plus  the  subsequent 
enhancement  in  the  value  of  its  land.  "  The  money  put 
into  the  business,"  means  that  which  has  been  expended 
for  labour,  materials,  land,  equipment,  and  all  other  items 
and  costs  of  organising  the  concern,  together  with  the  sum 
that  is  necessary  to  cover  the  interest  not  obtained  by  the 
investors  during  the  preparatory  period  before  the  business 
became  productively  operative.  The  increase  in  the  value 
of  the  land  after  its  acquisition  by  the  company  also  de- 
serves a  place  in  the  legitimate  valuation,  and  may  reason- 
ably be  represented  by  an  appropriate  amount  of  securities. 
Monopolistic  corporations  have  as  good  a  right,  generally 
speaking,  to  profit  by  the  "  unearned  increment "  of  land 
as  competitive  concerns.  In  brief,  the  proper  measure  of 
capitalisation  is  cost:  either  the  original  cost,  as  just  ex- 


THE   MORAL   ASPECT   OF   STOCKWATERING  281 

plained  and  supplemented;  or  the  present  cost  of  reproduc- 
ing the  business. 

Injurious  Effects  of  Stochwatering 

Stockwatering  can  become  an  instrument  of  unjust 
gains  in  two  ways :  first,  through  fraud  inflicted  upon  some 
of  the  investors;  second,  through  the  imposition  of  exorbi- 
tant prices  upon  the  consumers.  The  former  cannot  occur 
so  long  as  the  process  of  inflation  does  not  go  beyond  earn- 
ing power;  for  in  that  case  all  stockholders,  barring  dis- 
honest manipulation  of  the  company's  receipts,  will  obtain 
the  normal  rate  of  interest  on  their  investment.  If,  how- 
ever, stock  is  sold  in  excess  of  the  earning  power  of  the 
concern,  those  stockholders  who  fail  to  obtain  the  ordinary 
rate  of  interest  on  their  money  are  unjustly  treated  in  so 
far  as  they  have  been  deceived.  And  those  officers  or 
other  members  of  the  corporation  who  have  profited  by 
the  deception  of  and  injury  to  these  stockholders,  are  the 
recipients  of  unjust  gains.  Daniel  Drew  inflated  the  capi- 
talisation of  the  Erie  Railroad  from  seventeen  millions  to 
seventy-eight  millions  within  four  years  for  the  purpose 
of  manipulating  the  stock  market;  owing  to  excessive 
issues  of  stock,  the  American  Shipbuilding  Company  was 
thrown  into  bankruptcy  to  the  great  injury  of  all  but  one 
of  its  stockholders ;  ^  because  they  issued  securities  to  buy 
subsidiary  railway  lines  at  exorbitant  prices,  and  to  provide 
extravagant  commissions  and  discounts  for  bankers,  the 
directors  of  the  'Frisco  System  forced  it  into  a  receiver- 
ship, after  having  inflicted  a  net  loss  of  four  million  dol- 
lars per  year  upon  the  stockholders.^  Many  other  notable 
performances  might  be  cited  where  stockwatering,  both  in 
railroads  and  in  industrial  concerns,  has  defrauded  in- 

1  Cf.  Ripley,  "  Trusts,  Pools,  and  Corporations,"  pp.  207-210. 

2  See  Report  of  the  Interstate  Commerce  Commission  on  these  trans- 
actions. 


282  DISTRIBUTIVE   JUSTICE 

vestors  of  millions  of  dollars,  and  enabled  a  few  powerful 
directors  to  reap  corresponding  enormous  profits. 

At  first  sight  it  would  seem  that  stockwatering  is  of  little 
or  no  importance  to  the  consumer.  Since  a  monopolistic 
concern  endeavours  to  fix  its  prices  at  the  point  that  will 
yield  the  maximum  net  profit  in  any  case,  the  amount  of 
stock  in  existence  would  seem  to  be  irrelevant  to  the  prob- 
lem. Nevertheless,  the  presence  of  a  large  quantity  of 
fictitious  capital  whose  owners  are  calling  for  dividends, 
sometimes  constitutes  a  special  force  impelling  the  imposi- 
tion of  higher  prices  and  charges,  "  It  will  happen  at 
times  that  overcapitalisation  does  at  least  cause  a  clinging 
to  high  prices.  The  managers  of  an  overcapitalised  mo- 
nopoly may  have  to  face  the  fact  that  great  blocks  of 
securities  are  outstanding,  very  likely  issued  by  their  prede- 
cessors, and  now  held  by  all  sorts  of  investors.  They  are 
then  loath  to  let  go  any  slice  of  its  profits.  We  have  seen 
that  often  the  monopoly  principle  of  maximum  net  profit  is 
not  applied  in  its  full  sweep,  especially  in  industries  which 
are  potentially  subject  to  public  control.  Where  abnormal 
returns  on  the  original  investment  have  been  made,  con- 
cessions to  pubhc  opinion  in  the  way  of  low  rates  and 
better  facilities  are  more  likely  to  come  when  capitalisation 
has  not  been  inflated."  ^  The  United  States  Industrial 
Commission  found  that  as  regards  railroads :  "  In  the  long 
run  excessive  capitalisation  tends  to  keep  rates  high;  con- 
servative capitalisation  tends  to  make  rates  low."  ^ 

This  indirect  influence  of  stockwatering  toward  exces- 
sive rates  and  prices  becomes  effective  in  two  ways.  The 
existence  of  fictitious  capital  conceals  from  the  public  the 
high  rate  of  return  that  is  obtained  on  the  true  valuation, 
thus  preventing  effective  action  for  a  reduction  in  prices 
and  charges;  and  it  sometimes  causes  the  rate-making 
authorities  to  allow  rates  to  be  sufficiently  high  to  yield 

1  Taussig,  "  Principles  of  Economics,"  II,  385,  386. 

2  Final  Report,  p.  414. 


THE   MORAL   ASPECT   OF   STOCKWATERING  283 

something  to  the  investors  in  the  inflated  capital.  If  a 
trust  or  a  railroad  has  issued  stock  having  a  par  value  of 
twice  the  capital  invested,  its  rate  of  dividend  on  the  entire 
capitalisation  will  be  only  one-half  the  rate  of  interest  that 
it  is  receiving  on  the  investment.  If  it  pays,  for  example, 
seven  per  cent,  on  all  its  stock,  it  will  be  getting  fourteen 
per  cent,  on  its  genuine  capital.  While  the  consumers  of 
tobacco,  or  the  patrons  of  a  railroad,  would  raise  no  out- 
cry against  seven  per  cent,  dividends,  they  would  probably 
begin  to  agitate  for  an  enforcement  of  the  anti-trust  laws, 
and  for  a  reduction  in  freight  and  passenger  charges,  if 
they  realised  that  they  were  providing  for  dividends  of 
fourteen  per  cent.  Nor  is  the  public  adequately  protected 
by  government  investigations  of  trusts  and  regulation  of 
railway  rates.  Despite  the  anti-trust  laws,  many  Amer- 
ican monopolies  have  for  many  years  received  exorbitant 
profits  through  excessive  prices  imposed  upon  the  con- 
sumer; and  in  many  of  these  instances  overcapitalisation 
and  its  resulting  concealment  of  real  profits  have  been  of 
considerable  assistance  to  the  extortionate  monopoly.  In 
fixing  railway  rates,  the  Interstate  Commerce  Commission, 
and  the  various  state  railroad  commissions,  have  been 
seriously  hampered  by  their  inability  to  determine  the  real 
investment  of  the  roads,  and  to  separate  the  genuine  from 
the  fictitious  capitalisation.  Not  until  the  year  1913  did 
the  national  government  begin  the  task  of  making  a  valua- 
tion* of  interstate  railroad  property,  and  the  work  will  re- 
quire several  years.  Very  few  of  the  states  have  made 
valuations  of  the  railroads  within  their  borders.  In  the 
meantime  it  is  certain  that  many  of  the  rates  fixed  by  both 
the  national  and  the  state  bodies  will  continue,  as  in  the 
past,  to  be  higher  than  they  would  have  been  if  the  true 
value  of  the  railroads  were  known  and  accepted  as  the 
basis  of  freight  and  passenger  charges. 

The  second  bad  effect  of  stockwatering  on  the  consumer 
is   seen   when  rate-fixing  bodies  deliberately  permit  the 


284  DISTRIBUTIVE   JUSTICE 

charges  of  public  service  corporations  to  be  high  enough 
to  include  some  returns  on  that  portion  of  the  capitalisa- 
tion which  is  fictitious.  It  is  very  difficult  for  such  author- 
ities to  resist  entirely  the  plea  of  the  "  innocent  investor." 
Consequently,  railroad  commissions  and  other  rate  making 
authorities,  and  even  the  courts,  have  occasionally  made 
some  provision  for  dividends  on  the  "  water."  Chairman 
Knapp  of  the  Interstate  Commerce  Commission  admitted  a 
few  years  ago  that,  in  considering  the  reasonableness  of  a 
given  rate,  this  body  took  into  account  the  financial  condi- 
tion, and  therefore  the  capitalisation  of  the  railroad.^  In 
19 1 4  and  191 5  practically  all  the  great  railway  systems  of 
the  United  States  made  powerful,  and  in  a  measure  suc- 
cessful, appeals  to  the  Interstate  Commerce  Commission 
for  a  rise  in  rates  on  the  ground  that  they  were  unable  to 
pay  the  normal  rate  of  interest  on  their  securities,  and 
hence  could  not  obtain  on  advantageous  terms  new  capital 
needed  for  improvements.  Had  the  capitalisation  of  the 
roads  been  kept  down  to  the  actual  investment,  most  of 
them  would  have  been  able  to  pay  the  competitive  rate  of 
interest  on  all  their  stock,  and  still  have  a  sufficient  surplus 
to  command  excellent  credit. 

The  Moral  Wrong 

When  prices  or  charges  are  made  high  enough  to  pro- 
vide returns  on  fictitious  capital,  the  consumer  is  treated 
unjustly.  As  we  have  shown  more  than  once,  the  con- 
sumer cannot  rightfully  be  required  to  pay  for  the  products 
of  a  monopoly  at  a  greater  rate  than  is  necessary  to  pro- 
vide the  competitive  rate  of  interest  on  capital  in  the  aver- 
age conditions  of  efficiency.  If  some  concerns  are  able 
to  sell  at  this  price,  and.  still  obtain  surplus  gains,  they 
have  a  right  thereto  on  account  of  their  exceptional  pro- 
ductivity. But  the  capital  upon  which  a  monopolistic  con- 
cern has  a  claim  to  the  prevailing  rate  of  interest,  is  genuine 

1  Final  Report  of  the  Industrial  Commission,  p.  413. 


THE   MORAL  ASPECT   OF   STOCKWATERING  285 

capital :  that  is,  the  actual  investment  as  interpreted  above, 
not  an  inflated  capitalisation.  The  consumers  may  justly 
be  required  to  pay  for  the  use  and  benefit  of  actual  pro- 
ductive goods;  but  it  is  not  just  that  they  should  be  com- 
pelled to  pay  for  the  supposed  use  of  a  capital  that  has  no 
concrete  reality. 

The  stockholders  of  the  monopolistic  corporation  which 
imposes  upon  the  consumers  exorbitant  prices  or  charges 
through  the  instrumentality  of  inflated  capitalisation,  can 
become  guilty  of  this  injustice  in  two  ways:  by  promoting 
the  improper  capitalisation;  and  by  getting  dividends  on 
stock  for  which  they  have  not  given  a  fair  equivalent.  As 
a  rule,  the  greater  part  of  such  guilt  and  responsibility 
rests  upon  certain  special  and  powerful  groups  among  the 
stockholders.  For  example;  the  J.  P.  Morgan  syndicate 
which  organised  the  United  States  Steel  Corporation 
received  for  that  service  securities  to  the  value  of 
$63,500,000.  "  There  can  be  no  question,"  says  the 
Commissioner  of  Corporations,  "  that  this  huge  compensa- 
tion to  the  syndicate  was  greatly  in  excess  of  a  reasonable 
payment."  ^  The  syndicate  was  able  to  exact  this  stupen- 
dous sum  mainly  because  some  of  its  members  were  also 
in  control  of  some  of  the  companies  that  were  brought 
into  the  combination.  "  In  other  words,  as  managers  of 
the  Steel  Corporation  these  various  interests  virtually  de- 
termined their  compensation  as  underwriters."  ^  In  the 
opinion  of  the  minority  members  of  the  Stanley  congres- 
sional investigating  committee,  "  such  a  sum  bore  no  rela- 
tion whatever  to  the  service  rendered,  the  risk  run,  and 
the  capital  advanced."  ^  The  majority  of  the  committee 
characterised  the  transaction  in  even  stronger  language. 
It  is  clear,  therefore,  that  the  syndicate  committed  injustice 
toward  the  consumers  both  by  organising  a  monopoly 

1  Report  on  the  Steel  Industry,  p.  38. 

2  Idem,  p.  39. 

^Chicago  Record-Herald,  July  29,  1912. 


286  DISTRIBUTIVE   JUSTICE 

which  afterward  imposed  unjust  prices,  and  by  .taking 
millions  of  dollars  in  securities  which  its  members  did  not 
earn,  and  on  which  they  received  interest  through  the 
exorbitant  prices.  While  this  transaction  is  exceptionally 
conspicuous,  it  is  substantially  typical  of  the  methods  by 
which  many  powerful  monopolies  have  watered  their  stock 
to  the  detriment  of  the  public,  and  the  advantage  of  a 
small  group  of  directors  and  financiers. 

The  "Innocent"  Investor 

Is  the  State  obliged  to  protect,  or  is  even  justified  in 
protecting,  the  innocent  victims  of  stockwatering  ?  That 
is  to  say,  should  rate-making  authorities  fix  the  charges  of 
public  service  corporations  high  enough  to  return  some 
interest  to  the  purchasers  of  fictitious  securities?  All  the 
facts  and  presumptions  of  the  case  seem  to  demand  an 
answer  in  the  negative.  In  the  first  place,  it  is  impossible 
to  distinguish  the  "  innocent "  holders  from  those  who 
were  fully  acquainted  with  the  questionable  and  speculative 
nature  of  the  stock  at  the  time  it  came  into  their  posses- 
sion. In  the  second  place,  the  civil  law  has  never  formally 
recognised  any  such  claim  on  the  part  of  even  innocent 
investors,  nor  any  such  obligation  on  the  part  of  itself. 
It  has  never  laid  down  the  principle  that  any  class  of  in- 
vestors in  fictitious  stock  has  a  legal  or  moral  right  to 
obtain  the  normal  rate  of  interest  on  such  stock  through 
the  imposition  of  sufficiently  high  charges  upon  the  con- 
sumers. Nor  have  the  courts,  except  in  isolated  instances, 
sanctioned  any  such  principle.  On  the  contrary,  the 
Supreme  Court  of  the  United  States,  in  the  case  of  Smyth 
vs.  Ames,  declared  that  a  railroad  "  may  not  impose  upon 
the  public  the  burden  of  such  increased  rates  as  may  be 
required  for  the  purpose  of  realising  profits  upon  such  ex- 
cessive valuation  or  fictitious  capitalisation."  In  the  third 
place,  when  we  consider  the  matter  from  the  side  of 
morals,  we  see  that  the  innocent  investors  are  not  the  only 


THE   MORAL   ASPECT   OF   STOCKWATERING  287 

persons  whose  rights  are  involved.  If  charges  are  placed 
high  enough  to  cover  interest  on  fictitious  capital,  the  cost 
and  the  injury  fall  upon  the  consumers.  The  latter  have 
a  right  to  the  services  of  utility  corporations,  such  as  rail- 
vi^ays  and  gas  companies,  at  a  fair  price;  that  is,  a  price 
v^hich  will  return  to  the  capital  put  into  the  concern  the 
prevailing  rate  of  interest,  plus  whatever  gains  are  ob- 
tained by  exceptional  efficiency.  To  require  them  to  pay 
more  than  this,  is  to  compel  them  to  give  something  for 
nothing ;  namely,  to  provide  interest  on  capital  which  does 
not  exist,  and  from  which  they  receive  no  benefit.  When, 
therefore,  the  State  intervenes  to  secure  fair  charges  for 
the  consumers,  it  should  base  them  upon  the  capital  actually 
invested  and  used  in  the  business  of  public  service. 

Frequently,  however,  the  State  has  permitted  over- 
capitalisation, and  charges  sufficient  to  pay  normal  divi- 
dends thereon,  for  long  periods  of  years.  Has  it  not 
thereby  encouraged  investors  to  cherish  the  expectation 
that  these  high  charges  would  be  permitted  to  continue, 
and  that  the  fictitious  stock  would  remain  indefinitely  as 
valuable  as  when  it  came  into  their  possession?  Is  it  not 
breaking  faith  with  these  investors  when  it  reduces  charges 
to  the  basis  of  the  actual  investment?  A  sufficient  answer 
to  these  questions  is  found  in  the  fact  that  the  State  has 
never  officially  sanctioned  the  practice  of  stockwatering, 
nor  in  any  way  intimated  that  it  would  recognise  the  exist- 
ence of  the  fictitious  stock  when  it  should  take  up  the 
neglected  task  of  fixing  fair  rates  and  charges.  At  the 
most,  the  civil  law  has  merely  tolerated  the  practice,  and 
the  resulting  extortion  upon  the  public.  And  there  has 
never  been  a  time  when  the  greater  and  saner  part  of  public 
opinion  did  not  look  upon  overcapitalisation  as  at  the  least 
abnormal  and  irregular.  Neither  from  the  civil  law  nor 
from  public  sentiment  have  the  devices  of  inflating  capi- 
talisation received  that  measure  of  approval  which  would 
confer  upon  investments  therein  the  legal  or  the  moral 


288  DISTRIBUTIVE   JUSTICE 

Status  of  vested  rights.  To  the  "  innocent  investor  "  in 
watered  stocks  the  maxim,  caveat  emptor,  is  as  fairly 
applicable  as  to  the  man  who  has  been  deceived  into  lend- 
ing his  money  on  insufficient  security,  or  the  man  who  has 
been  induced  by  the  asseverations  of  a  highly  imaginative 
prospectus  to  put  his  money  into  a  salted  gold  mine,  or  the 
man  who  buys  stolen  goods  from  a  pawn  shop,  or  the  man 
who  because  of  insufficient  police  protection  loses  his  purse 
to  a  highwayman.  In  all  these  cases  perfect  legal  safe- 
guards would  have  prevented  the  loss ;  yet  in  none  of  them 
does  the  State  undertake  to  make  the  loss  good  to  the 
innocent  victim. 

Such  seems  to  be  the  strict  justice  of  the  situation  as 
between  the  consumer  and  the  innocent  investor.  It  may 
sometimes  happen  that  a  particularly  grave  hardship  can  be 
averted  from  the  latter  at  a  comparatively  slight  cost  to 
the  former.  In  such  a  case  equity  would  seem  to  require 
that  some  concession  be  made  to  the  investors  through  the 
imposition  of  somewhat  higher  charges  upon  the  consumer. 

Magnitude  of  Overcapitalisation 

Probably  the  majority  of  the  great  steam  railroads, 
street  railways,  and  gas  companies  that  were  organised 
during  the  last  quarter  of  the  nineteenth  century  inflated 
their  capitalisation  to  a  greater  or  less  extent.  Since  the 
year  1900  the  trusts  have  been  the  chief  exponents  and 
illustrations  of  the  practice.  According  to  President  Van 
Hise,  "  the  majority  of  the  great  concentrations  of  in- 
dustry have  gone  through  two  or  three  stages  of  reorgani- 
sation, the  promoters  and  financiers  each  time  profiting 
greatly,  sometimes  enormously."  ^  For  example;  in  1908 
the  "  water  "  in  the  American  Tobacco  Company  was  esti- 
mated by  the  Commissioner  of  Corporations  at  $66,- 
000,000;  the  United  States  Shipbuilding  Company 
diluted  its  twelve  and  one-half  million  dollars  of  capital 

1  Op.  cit.,  p.  28. 


THE   MORAL   ASPECT   OF   STOCKWATERING  289 

with  more  than  fifty-five  millions  of  "  water  ";  the  United 
States  Steel  Corporation  contained  at  the  time  of  its  organ- 
isation fictitious  capital  to  the  amount  of  $500,000,000; 
and  at  least  fifty  per  cent,  of  the  common  stock  of  the 
American  Sugar  Refining  Company  represented  no  actual 
investment.^  Owing  to  the  penetrating  and  widespread 
criticism,  and  the  government  investigations  and  prosecu- 
tions of  the  last  few  years,  the  practice  of  stockwatering 
has  very  greatly  diminished.  Perhaps  the  most  flagrant 
recent  example  is  that  of  the  Pullman  Company,  which 
according  to  the  testimony  of  R.  T.  Lincoln  before  the 
Federal  Commission  on  Industrial  Relations,  distributed 
among  its  stockholders  $100,000,000  in  stock  dividends 
between  1898  and  1910. 

Nevertheless  the  temptation  to  inflate  capital  will  exist 
until  the  device  is  stringently  prohibited  by  law.  Both  the 
nation  and  the  states  ought  to  adopt  the  policy  of  forbid- 
ding the  sale  of  stock  at  less  than  par  value,  and  restricting 
issues  of  stock  to  the  amount  required  for  the  establish- 
ment, equipment,  and  permanent  betterment  of  a  concern, 
including  a  sum  to  cover  the  loss  of  interest  to  the  investors 
during  the  early  period  of  the  business.  Any  extraor- 
dinary risks  to  which  an  enterprise  is  Hable  can  be  pro- 
tected by  the  simple  device  of  allowing  a  correspondingly 
high  rate  of  interest  on  the  securities.  With  such  legisla- 
tion enacted  and  enforced,  neither  the  investor  nor  the 
consumer  could  be  deceived  or  defrauded;  and  the  financing 
and  management  of  corporations  would  become  less  specu- 
lative, and  more  beneficial  to  the  community.  The  present 
chapter  may  be  fittingly  closed  with  a  moderate  and  sig- 
nificant statement  from  the  pen  of  Professor  Taussig: 
"  It  is  doubtful  whether  the  whole  mechanism  of  irregular 
and  swollen  capitalisation  was  at  any  time  necessary  or 
wise.  Why  not  provide  once  for  all  that  securities  shall 
be  issued  only  to  represent  what  has  been  invested?  .  .  . 

1  Cf.  Van  Hise,  op.  cit,  pp.  29, 142,  149. 


290  DISTRIBUTIVE   JUSTICE 

It  is  sometimes  said  that  freedom,  even  recklessness,  in  the 
issue  of  securities  was  a  useful  device,  in  that  it  enabled 
the  projectors  to  look  forward  to  returns  really  tempting, 
and  at  the  same  time  concealed  these  returns  from  a 
grudging  public.  ...  A  more  simple  and  straightforward 
way  of  dealing  with  the  issue  of  securities  might  thus 
have  dampened  in  some  degree  the  feverish  speculation 
and  restless  progress  of  railway  development.  But  a 
slower  pace  would  have  had  its  advantages  also,  and,  not 
least,  restriction  of  securities  would  have  saved  great  com- 
plications in  the  later  stages  of  established  monopoly  and 
needed  regulation."  ^ 

1  Op.  cit,  II,  387,  388. 


CHAPTER  XX 

THE   LEGAL   LIMITATION   OF   FORTUNES 

If  the  taxation  and  other  measures  of  reform  suggested 
in  Section  I  were  fully  applied  to  our  land  system;  if  co- 
operative enterprise  were  extended  to  its  utmost  practicable 
limits  for  the  correction  of  capitalism;  and  if  the  wide 
extension  of  educational  opportunities,  and  the  elimina- 
tion of  the  surplus  gains  of  monopoHes  restricted  the 
profits  of  the  business  man  to  an  amount  strictly  com- 
mensurate with  his  ability  and  risks, —  if  all  these  results 
were  accomplished  the  number  of  men  who  could  become 
millionaires  through  their  own  efforts  would  be  so  small 
that  their  success  would  arouse  popular  applause  rather 
than  popular  envy.  Their  claim  to  whatever  wealth  they 
might  accumulate  would  be  generally  looked  upon  as  en- 
tirely valid  and  reasonable.  Their  pecuniary  eminence 
would  be  pronounced  quite  as  deserved  as  the  literary  emi- 
nence of  a  Lowell,  the  scientific  eminence  of  a  Pasteur, 
or  the  political  eminence  of  a  Lincoln.  In  such  conditions 
there  could  be  no  disconcerting  discussion  of  the  menace 
of  great  fortunes. 

In  the  meantime,  these  reforms  are  not  realised,  nor  are 
they  likely  to  be  even  approximately  established  within 
the  present  generation.  For  some  time  to  come  it  will  be 
possible  for  the  exceptionally  able,  the  exceptionally  cim- 
ning,  and  the  exceptionally  lucky  to  accumulate  great  riches 
through  clever  and  fortuitous  utilisation  of  special  advan- 
tages, natural  and  otherwise.  Moreover,  a  great  propor- 
tion of  the  large  fortunes  already  in  existence  will  persist, 
and  will  be  transmitted  to  heirs  who  will  in  many  cases 

291 


292  DISTRIBUTIVE   JUSTICE 

cause  them  to  increase.  Can  nothing  be  done  to  reduce 
the  size  and  lessen  the  number  of  these  great  accumula- 
tions? If  so,  is  such  a  proceeding  socially  and  morally 
desirable  ? 

The  Method  of  Direct  Limitation 

The  law  might  directly  limit  the  amount  of  property  to 
be  held  by  any  individual.  If  the  limit  were  placed  fairly 
high,  say,  at  one  hundred  thousand  dollars,  it  could  scarcely 
be  regarded  as  an  infringement  on  the  right  of  property. 
In  the  case  of  a  family  numbering  ten  members,  this  would 
mean  one  million  dollars.  All  the  essential  objects  of 
private  ownership  could  be  abundantly  met  out  of  a  sum 
of  one  hundred  thousand  dollars  for  each  person.  More- 
over, a  restriction  of  this  sort  need  not  prevent  a  man  from 
bestowing  unlimited  amounts  upon  charitable,  religious, 
educational,  or  other  benevolent  causes.  It  would,  indeed, 
hinder  some  persons  from  satisfying  certain  unessential 
wants,  such  as,  the  desire  to  enjoy  gross  or  refined  lux- 
uries, great  financial  power,  and  the  control  of  immense 
industrial  enterprises;  but  none  of  these  objects  is  neces- 
sary for  any  individual's  genuine  welfare.  In  the  interest 
of  the  social  good  such  private  and  unimportant  ends  may 
properly  be  rendered  impossible  of  realisation. 

Such  a  restriction  would  no  more  constitute  a  direct 
attack  upon  private  ownership  than  limitations  upon  the 
use  and  kinds  of  property.  At  present  a  man  may  not  do 
what  he  pleases  with  his  gun,  his  horse,  or  his  automobile, 
nor  may  he  invest  his  money  in  the  business  of  carrying 
the  mails.  The  limitation  of  fortunes  is  just  what  the 
word  expresses,  a  limitation  of  the  right  of  property.  It 
is  not  a  denial  nor  destruction  of  that  right.  As  a  limita- 
tion of  the  amount  to  be  held  by  an  individual,  it  does  not 
differ  in  principle  from  a  limitation  of  the  kinds  of  goods 
that  may  become  the  subject  of  private  ownership.  There 
is  nothing  in  the  nature  of  things  nor  in  the  reason  of 


THE   LEGAL   LIMITATION   OF   FORTUNES  293 

property  to  indicate  that  the  right  of  ownership  is  un- 
limited in  quantity  any  more  than  it  is  in  quaHty.  The 
final  end  and  justification  of  individual  rights  of  property 
is  human  welfare;  that  is,  the  welfare  of  all  individuals 
severally  and  collectively.  Now  it  is  quite  within  the 
bounds  of  physical  possibility  that  the  limitation  under 
discussion  might  be  conducive  to  the  welfare  of  human 
beings  both  as  individuals  and  as  constituting  society. 

Nevertheless  the  dangers  and  obstacles  confronting  any 
legal  restriction  of  fortunes  are  so  real  as  to  render  the 
proposal  socially  inexpedient.  It  would  easily  lend  itself 
to  grave  abuse.  Once  the  community  had  habituated  itself 
to  a  direct  limitation  of  any  sort,  the  temptation  to  lower 
it  in  the  interest  of  better  distribution  and  simpler  living 
would  become  exceedingly  powerful.  Eventually  the  right 
of  property  might  take  such  an  attenuated  and  uncertain 
form  in  the  public  mind  as  to  discourage  labour  and 
initiative,  and  thus  seriously  to  endanger  human  welfare. 
In  the  second  place,  the  manifold  evasions  to  which  the 
measure  would  lend  itself  would  make  it  of  very  doubtful 
efficacy.  To  be  sure,  neither  of  these  objections  is  abso- 
lutely conclusive,  but  taken  together  they  are  sufficiently 
weighty  to  dictate  that  such  a  proposal  should  not  be  enter- 
tained so  long  as  other  and  less  dangerous  methods  are 
available  to  meet  the  problem  of  excessive  fortunes. 

Four  of  the  nine  members  of  the  Federal  Commission 
on  Industrial  Relations  have  suggested  that  the  amount  of 
property  capable  of  being  received  by  the  heirs  of  any 
person  be  limited  to  one  million  dollars.^  If  we  assume 
that  by  heirs  the  Commission  meant  the  natural  persons  to 
whom  property  might  come  by  bequest  or  succession,  this 
limitation  would  permit  a  family  of  ten  persons  to  inherit 
one  hundred  thousand  dollars  each,  and  a  family  of  five 
persons  to  obtain  two  hundred  thousand  dollars  apiece. 
Would  such  a  restriction  be  a  violation  of  the  right  of 

1 "  Final  Report,"  p.  32. 


294  DISTRIBUTIVE  JUSTICE 

private  ownership  ?  The  answer  depends  upon  the  effects 
of  the  measure  on  human  welfare.  The  rights  of  bequest 
and  succession  are  integral  elements  of  the  right  of  owner- 
ship ;  hence  they  are  based  upon  human  needs,  and  designed 
for  the  promotion  of  human  life  and  development.  A  per- 
son needs  private  property  not  only  to  provide  for  his 
personal  wants  and  those  of  his  family  during  his  life- 
time, but  also  to  safeguard  the  welfare  of  his  dependents 
and  to  assist  other  worthy  purposes,  after  he  has  passed 
away.  Owing  to  the  uncertainty  of  death,  the  latter  ob- 
jects cannot  be  adequately  realised  without  the  institutions 
of  bequest  and  succession. 

All  the  necessary  and  rational  ends  of  bequest  and  suc- 
cession could  be  attained  in  a  society  in  which  no  man's 
heirs  could  inherit  more  than  one  million  dollars.  Under 
such  an  arrangement  very  few  of  the  children  of  million- 
aires would  be  prevented  from  getting  at  least  one  hun- 
dred thousand  dollars.  That  much  would  be  amply  suffi- 
cient for  the  essential  and  reasonable  needs  of  any  human 
being.  Indeed,  we  may  go  further,  and  lay  down  the 
proposition  that  the  overwhelming  majority  of  persons  can 
lead  a  more  virtuous  and  reasonable  life  on  the  basis  of  a 
fortune  of  one  hundred  thousand  dollars  than  when  bur- 
dened with  any  larger  amount.  The  persons  who  have 
the  desire  and  the  ability  to  use  a  greater  sum  than  this  in 
a  rational  way  are  so  few  that  a  limitation  law  need  not 
take  them  into  account.  Corporate  persons,  such  as  hos- 
pitals, churches,  schools,  and  other  helpful  institutions, 
should  not,  as  a  rule,  be  restricted  as  to  the  amount  that 
they  might  inherit ;  for  many  of  them  could  make  a  good 
use  of  more  than  the  amount  that  suffices  for  a  natural 
person. 

So  much  for  the  welfare  and  rights  of  the  beneficiaries 
of  inheritance.  The  owners  of  estates  would  not  be  in- 
jured in  their  rights  of  property  by  the  limitation  that  we 
are  here  considering.     In  the  first  place,  the  number  of 


THE    LEGAL   LIMITATION    OF   FORTUNES  295 

persons  practically  affected  by  the  limitation  would  be  ex- 
tremely small.  Only  an  insignificant  fraction  of  property 
owners  ever  transmit  or  expect  to  be  wealthy  enough  to 
transmit  to  their  families  more  than  one  million  dollars. 
Of  these  few  a  considerable  proportion  would  not  be  de- 
terred by  the  million  dollar  limitation  from  putting  forth 
their  best  and  greatest  efforts  in  a  productive  way.  They 
would  continue  to  work  either  from  force  of  habit  and 
love  of  their  accustomed  tasks,  or  from  a  desire  to  make 
large  gifts  to  their  heirs  during  life,  or  because  they  wished 
to  assist  some  benevolent  enterprise.  The  infinitesimally 
small  number  whose  energies  would  be  diminished  by  the 
limitation  could  very  safely  be  treated  as  a  socially  neg- 
ligible element.  The  commimity  would  be  better  off  with- 
out them. 

The  limitation  of  inheritance  would,  indeed,  be  liable 
to  abuse.  Circumstances  would  undoubtedly  arise  in 
which  the  community  would  be  strongly  tempted  to  make 
the  maximum  inheritable  amount  so  low  as  to  discourage 
the  desire  of  acquisition,  and  to  deprive  heirs  of  reasonable 
protection.  While  the  bad  effects  of  such  a  limitation 
would  not  be  as  great  as  those  following  a  similar  abuse 
with  regard  to  possessions,  they  are  sufficiently  grave  and 
sufficiently  probable  to  suggest  that  the  legal  restriction  of 
bequest  and  succession  should  not  be  considered  except  as 
a  last  resort,  and  when  the  transmission  of  great  fortunes 
had  become  a  great  and  certain  public  evil. 

It  seems  reasonable  to  conclude,  then,  that  neither  the 
limitation  of  possessions  nor  the  limitation  of  inheritance 
is  necessarily  a  direct  violation  of  the  right  of  property, 
but  that  the  possible  and  even  probable  evil  consequences 
of  both  are  so  grave  as  to  make  these  measures  of  very 
doubtful  benefit.  Whether  the  dangers  in  question  are 
sufficiently  great  to  render  the  adoption  of  either  proposal 
morally  wrong,  is  a  question  that  cannot  be  answered  with 
any  degree  of  confidence.     What  seems  to  be  fairly  certain 


296  DISTRIBUTIVE   JUSTICE 

is  that  in  our  present  conditions  legislation  of  this  sort 
would  be  an  unnecessary  and  unwise  experiment. 

Limitation  Through  Progressive  Taxation 

Is  it  legitimate  and  feasible  to  reduce  great  fortunes 
indirectly,  through  taxation?  There  is  certainly  no  ob- 
jection to  the  method  on  moral  or  social  principles.  As 
we  have  seen  in  chapter  viii,  taxes  are  not  levied  exclu- 
sively for  the  purpose  of  raising  revenue.  Some  kinds  of 
them  are  designed  to  promote  social  rather  than  fiscal  ends. 
Now,  to  prevent  and  diminish  dangerous  accumulations  of 
wealth  is  a  social  end  which  is  at  least  as  important  as 
most  of  the  objects  sought  in  license  taxes.  The  pro- 
priety of  attempting  to  attain  this  end  by  taxation  is,  there- 
fore, to  be  determined  entirely  by  reference  to  its  probable 
effectiveness. 

The  precise  method  of  taxation  available  here  is  a  pro- 
gressive tax  on  incomes  and  inheritances.  By  a  progres- 
sive tax  is  meant  one  whose  rate  advances  in  some  definite 
proportion  to  the  increases  in  the  amount  taxed.  For  ex- 
ample, a  bequest  of  100,000  dollars  might  pay  one  per 
cent. ;  200,000  dollars,  two  per  cent. ;  300,000  dollars,  three 
per  cent.,  and  so  forth.  The  reasonableness  of  the  prin- 
ciple of  progression  in  taxation  has  been  well  stated  by 
Professor  Seligman :  "  All  individual  wants  vary  in  in- 
tensity, from  the  absolutely  necessary  wants  of  mere  sub- 
sistence to  the  less  pressing  wants  which  can  be  satisfied 
by  pure  luxuries.  Taxes,  in  so  far  as  they  rob  us  of  the 
means  of  satisfying  our  wants,  impose  a  sacrifice  upon  us. 
But  the  sacrifice  involved  in  giving  up  a  portion  of  what 
enables  us  to  satisfy  our  necessary  wants  is  very  different 
from  the  sacrifice  involved  in  giving  up  what  is  necessary 
to  satisfy  our  less  urgent  wants.  If  two  men  have  in- 
comes of  one  thousand  dollars  and  one  hundred  thousand 
dollars  respectively,  we  impose  upon  them  not  equal  but 
very  unequal  sacrifices  if  we  take  away  from  each  the  same 


THE   LEGAL   LIMITATION   OF   FORTUNES  29/ 

proportion,  say  ten  per  cent.  For  the  one  thousand  dollar 
individual  now  has  only  nine  hundred  dollars,  and  must 
deprive  himself  and  his  family  of  necessaries  of  life;  the 
one  hundred  thousand  dollar  individual  has  ninety  thou- 
sand dollars,  and  if  he  retrenches  at  all,  v^hich  is  very 
doubtful,  he  will  give  up  only  great  luxuries,  which  do  not 
satisfy  any  pressing  wants.  The  sacrifice  imposed  on  the 
two  individuals  is  not  equal.  We  are  laying  on  the  one 
thousand  dollar  man  a  far  heavier  sacrifice  than  on  the  one 
hundred  thousand  dollar  man.  In  order  to  impose  equal 
sacrifices  we  must  tax  the  richer  man  not  only  absolutely, 
but  relatively,  more  than  the  poor  man.  The  taxes  must 
be  not  proportional,  but  progressive;  the  rate  must  be 
lower  in  the  one  case  than  in  the  other."  ^ 

The  principle  of  equality  of  sacrifices  which  underlies 
the  progressive  theory  does  not  justify  the  levelling  and 
communistic  inferences  that  have  sometimes  been  brought 
against  it.  Equality  of  sacrifice  does  not  mean  equality  of 
satisfied,  or  unsatisfied,  wants  after  the  tax  has  been  col- 
lected. If  Brown  pays  a  tax  of  one  per  cent,  on  his  in- 
come of  two  thousand  dollars,  it  does  not  follow  that  Jones 
with  an  income  of  ten  thousand  dollars  should  pay  a  suf- 
ficiently high  rate  to  leave  him  with  only  the  net  amount 
remaining  to  Brown;  namely,  1980  dollars.  Equality  of 
sacrifice  means  proportional  equality  of  burden,  not  equal- 
ity of  net  resources  after  the  tax  has  been  deducted.  The 
object  of  the  progressive  rate  is  to  make  relatively  equal 
the  sacrifices  caused  by  the  tax  itself,  not  to  equalise  the 
sum  total  of  burdens  or  unsatisfied  wants  that  exist  among 
men. 

Another  objection  to  progressive  taxation  is  that  it 
readily  lends  itself  to  confiscation  of  the  largest  incomes. 
All  that  is  necessary  to  produce  this  result  is  to  increase 
the  rate  with  sufficient  rapidity.     This  could  be  accom- 

1 "  Progressive  Taxation,"  pp.  210,  211 ;  cf.  Vermeersch,  "  Quaestiones 
de  Justitia,"  pp.  94-126. 


298  DISTRIBUTIVE   JUSTICE 

plished  either  by  large  steps  in  the  rate  itself  or  by  small 
steps  in  the  income  increases  which  formed  the  basis  of 
the  advances  in  the  rate.  For  example,  if  the  Federal  in- 
come tax,  which  at  present  levies  two  per  cent,  on  incomes 
of  more  than  three  thousand  dollars,  and  three  per  cent,  on 
incomes  of  over  twenty  thousand  dollars,  should  thereafter 
progress  geometrically  with  every  geometrically  progressive 
increment  of  income,  the  rate  on  incomes  above  $640,000 
would  be  96  per  cent.!  Or  if  the  rate  should  progress 
arithmetically  with  every  ten  thousand  dollars  of  increase 
above  twenty  thousand  dollars,  it  would  be  100  per  cent, 
on  incomes  of  over  $990,000! 

To  this  objection  there  are  two  valid  answers.  Even  if 
the  rate  should  ultimately  reach  one  hundred  per  cent,  it 
need  not,  and  on  progressive  principles  it  should  not,  effect 
confiscation  of  an  entire  income.  The  progressive  theory 
is  satisfied  when  the  successive  rates  of  the  tax  apply  to 
successive  increments  of  income,  instead  of  to  the  entire 
income.  For  example,  the  rate  might  begin  at  one  per 
cent,  on  incomes  of  one  thousand  dollars,  and  increase  by 
one  per  cent,  with  every  additional  thousand,  and  yet  leave 
a  very  large  part  of  the  income  in  the  hands  of  the  re- 
ceiver. Each  one  thousand  dollars  would  be  taxed  at  a 
different  rate,  the  first  at  one  per  cent.,  the  fiftieth  at  fifty 
per  cent,  and  the  last  at  one  hundred  per  cent.  If  the 
hundred  per  cent,  rate  were  applied  to  the  whole  of  the 
higher  incomes,  it  would  be  a  direct  violation  of  the  prin- 
ciple of  equality  of  sacrifice.  In  the  second  place,  the 
progressive  theory  forbids  rather  than  requires  the  rate  to 
go  as  high  as  one  hundred  per  cent.  While  the  sacrifices 
imposed  by  a  given  rate  are  greater  in  the  case  of  small 
than  of  large  properties,  they  become  approximately  equal 
as  between  all  properties  above  a  certain  high  level.  After 
this  level  is  reached,  additional  increments  of  wealth  will 
all  be  expended  either  for  extreme  luxuries,  or  converted 
into   new    investments.     Consequently   they    will   supply 


THE   LEGAL   LIMITATION   OF   FORTUNES  299 

wants  of  approximately  equal  intensity.  For  example,  the 
wants  dependent  upon  a  surplus  of  25,000  dollars  in  excess 
of  an  income  of  100,000  dollars,  and  the  wants  dependent 
upon  a  surplus  of  75,000  dollars  above  the  same  level  do 
not  differ  materially  in  strength.  To  diminish  these  sur- 
pluses by  the  same  per  cent.,  say,  ten,  would  impose  pro- 
portionally equal  burdens. 

Hence  the  rate  of  progression  should  be  degressive;  that 
is,  it  should  increase  at  a  constant  pace  until  a  certain  high 
level  of  income  is  reached,  then  increase  at  a  steadily  di- 
minishing pace,  and  finally  become  uniform  on  the  very 
highest  incomes.  For  example;  if  the  rate  increased  one 
per  cent,  with  every  additional  five  thousand  dollars, 
reaching  fifteen  per  cent,  on  incomes  of  seventy-five  thou- 
sand dollars,  it  should  be  on  eighty  thousand  dollars,  not 
sixteen  but  fifteen  and  one-half  per  cent.  On  85,000  dol- 
lars the  rate  should  be  15%  per  cent.;  on  90,000,  15%  per 
cent.;  on  95,000,  i5^/'l6  per  cent.;  and  on  all  sums  of 
100,000  and  over,  16  per  cent.  The  point  at  which  the  in- 
crements in  the  rate  began  to  decline  would  be  that  at 
which  differences  in  wants  began  to  diminish,  and  the 
point  at  which  the  rate  became  stationary  would  be  that  at 
which  wants  fell  to  the  same  level  of  intensity. 

The  Proper  Rate  of  Income  and  Inheritance  Taxes 

While  the  principle  of  equality  of  sacrifices  forbids  a 
rate  of  tax  that  would  reach  or  approximate  confiscation, 
it  gives  no  definite  indication  of  the  proper  scale  of  pro- 
gression, or  of  the  maximum  limit  that  justice  would  set 
to  the  rate.  Under  our  Federal  law  the  highest  rate  on 
incomes  is  now  13  per  cent.;  under  the  Wisconsin  law  it 
is  6  per  cent. ;  under  the  law  of  Prussia  it  is  4  per  cent. ; 
and  under  the  British  act  of  1909  it  is  about  8^  per  cent. 
Evidently  a  much  higher  rate  than  any  of  these  would  be 
required  to  make  any  impression  upon  swollen  fortunes. 
The  British  government  recently  (September,  1915)  made 


300  DISTRIBUTIVE   JUSTICE 

the  maximum  rate  about  33^^  per  cent.  To  be  sure,  this 
is  a  war  measure  which  probably  will  not  continue  after 
the  restoration  of  peace.  However,  if  it  were  made  per- 
manent it  could  not  be  proved  to  be  unjust,  provided  that  it 
were  applied  to  the  increments  of  income  above  a  certain 
high  limit,  but  not  to  these  incomes  in  their  entirety. 

Our  present  inheritance  taxes  are  very  low,  averaging 
less  than  3  per  cent,  throughout  the  United  States.  Prob- 
ably the  highest  rate  is  to  be  found  in  Wisconsin,  where 
bequests  to  non  relatives  in  excess  of  half  a  million  dollars 
are  subject  to  a  tax  of  fifteen  per  cent.  It  is  clear  that  all 
the  existing  rates  could  be  raised  very  considerably  with- 
out causing  a  violation  of  justice.  Some  years  ago  An- 
drew Carnegie  recommended  a  tax  of  fifty  per  cent,  on 
estates  amounting  to  more  than  one  million  dollars.^  No 
country  has  yet  reached  this  high  level  of  inheritance  taxes. 
Nevertheless  we  cannot  certainly  stigmatise  it  as  unjust 
either  to  the  testator  or  his  heirs,  nor  can  we  prove  that  it 
is  in  any  other  manner  injurious  to  human  welfare.  All 
that  can  be  said  with  confidence  concerning  the  just  rates 
of  inheritance  taxation  must  take  the  form  of  generalisa- 
tions. The  increments  of  the  tax  should  correspond  as 
closely  as  possible  to  the  diminishing  intensity  of  the  wants 
which  the  tax  deprives  of  satisfaction;  in  the  case  of  each 
heir  a  certain  fairly  high  minimum  of  property  should  be 
entirely  exempt;  on  all  the  highest  estates  the  rate  should 
be  uniform,  and  it  should  fall  a  long  way  short  of  con- 
fiscation ;  and  the  tax  should  at  no  point  be  such  as  to  dis- 
courage socially  useful  activity  and  enterprise. 

Effectiveness  of  Such  Taxation 

The  essential  justice  of  the  measures  is  not  the  only  con- 
sideration affecting  high  income  and  inheritance  taxes. 
There  remain  the  questions  of  expediency  and  feasibility. 
Under  the  first  head  the  objection  is  sometimes  raised  that 

1 "  The  Gospel  of  Wealth,"  pp.  1 1,  12. 


THE  LEGAL  LIMITATION  OF  FORTUNES      3OI 

taxes  which  appropriated  a  considerable  portion  of  the 
larger  incomes  and  inheritances  would  diminish  very  ma- 
terially the  social  supply  of  capital.  Immense  sums  of 
money  would  go  into  the  public  treasury  which  otherwise 
would  have  been  invested  in  commerce  and  industry.  Two 
questions  are  raised  by  this  situation :  first,  whether  it  might 
not  be  better  for  society  to  have  these  sums  devoted, 
through  public  works  of  various  kinds,  to  consumptive 
uses  instead  of  to  an  increase  in  the  supply  of  capital ;  sec- 
ond, whether  the  reduction  in  the  savings  and  capital  pro- 
vided by  the  persons  paying  the  taxes  could  be  offset  by 
increases  in  saving  among  other  classes.  Even  if  it  be 
assumed  that  the  first  question  should  receive  a  negative 
answer,  it  is  not  improbable  that  the  second  should  be  an- 
swered in  the  affirmative.  In  other  words,  the  increased 
saving  which  the  poorer  and  middle  classes  would  be 
enabled  to  make  as  a  result  of  the  shifting  of  some  of  their 
burden  of  taxation  to  the  large  incomes  and  inheritances, 
might  very  well  counterbalance  the  curtailment  in  the  in- 
vestments of  the  wealthy  classes.  Even  if  this  possibility 
were  not  fully  realised,  even  if  the  net  volume  of  capital 
in  the  community  were  somewhat  diminished,  this  disad- 
vantage might  be  more  than  neutralised  by  the  wider  social 
benefits  of  the  taxation  policy. 

With  regard  to  the  feasibility  of  very  heavy  income  and 
inheritance  taxes,  it  is  sometimes  contended  that  neither 
of  these  measures  can  be  made  effective  toward  the  reduc- 
tion of  abnormal  fortunes.^  It  is  held  that  the  successful 
collection  of  these  taxes  requires  the  co-operation  of  the 
persons  affected  by  them;  that  if  the  rate  should  go  above 
ten  or  twelve  per  cent.,  the  income  receiver  would  evade 
the  tax  in  a  great  variety  of  ways,  while  the  owner  of  a 
large  estate  would  transfer  his  property  outright  to  a  trust 
company,  which  would  after  his  death  make  the  desired 

1  Cf.  Dr.  T.  S.  Adams  in  "  Papers  and  Proceedings  of  the  27th  Annual 
Meeting  of  the  American  Economic  Association,"  pp.  234,  sq. 


302  DISTRIBUTIVE   JUSTICE 

distribution.  The  man  who  urges  these  objections  is  a 
very  high  authority  on  taxation,  especially  on  its  adminis- 
trative side;  nevertheless  his  contentions  are  not  absolutely 
conclusive.  In  particular,  it  does  not  seem  probable  that 
high  inheritance  taxes  could  be  evaded  by  the  simple  de- 
vices that  he  mentions.  It  ought  not  to  be  beyond  the 
power  of  administrative  ingenuity  to  find  methods  of  de- 
feating such  subterfuges.  However,  it  is  altogether  likely 
that  the  possibilities  of  evasion  would  be  sufficient  to  pre- 
vent the  imposition  of  tax  rates  that  approached  within 
measurable  distance  of  the  borderland  of  confiscation. 

The  sum  of  the  matter  seems  to  be  that  the  reduction 
and  prevention  of  great  fortunes  cannot  prudently  be  ac- 
compHshed  by  the  method  of  direct  limitation ;  that  these 
ends  may  wisely  and  justly  be  attained  indirectly,  through 
the  imposition  of  progressive  income  and  inheritance 
taxes ;  but  that  the  extent  to  which  these  measures  would 
be  genuinely  effective  cannot  be  estimated  until  they  have 
been  given  a  thorough  trial. 


CHAPTER  XXI 

THE   DUTY   OF   DISTRIBUTING   SUPERFLUOUS    WEALTH 

The  correctivies  of  the  present  distribution  that  were 
proposed  before  the  beginning  of  the  last  chapter  related 
mainly  to  the  apportionment  of  the  product  among  the 
agents  of  production.  They  would  affect  that  distribution 
which  takes  place  as  an  integral  element  of  the  productive 
process,  not  any  disposition  which  the  productive  agents 
might  desire  or  be  required  to  make  of  the  shares  that 
they  had  acquired  from  the  productive  process.  Such 
were  many  of  the  proposals  regarding  land  tenure,  and  all 
of  those  concerning  co-operative  enterprises  and  monopoly. 
In  the  last  chapter  we  considered  the  possibility  of  neu- 
tralising to  some  extent  the  abuses  of  the  primary  distri- 
bution by  the  action  of  government  through  the  taxation 
of  large  fortunes.  These  were  proposals  directly  affect- 
ing the  secondary  distribution.  And  thiey  involved  the 
method  of  compulsion.  In  the  present  chapter  we  shall  in- 
quire whether  desirable  changes  in  the  secondary  distribu- 
tion may  not  be  effected  by  voluntary  action.  The  specific 
questions  confronting  us  here  are,  whether  and  how  far 
proprietors  are  morally  bound  to  distribute  their  super- 
fluous wealth  among  their  less  fortunate  fellows. 

The  Question  of  Distributing  Some 

The  authority  of  revealed  religion  returns  to  the  first  of 
these  questions  a  clear  and  emphatic  answer  in  the  affirma- 
tive. The  Old  and  the  New  Testaments  abound  in  declara- 
tions that  possessors  are  under  very  strict  obligation  to 
give  of  their  surplus  to  the  indigent.     Perhaps  the  most 

303 


304  DISTRIBUTIVE   JUSTICE 

striking  expression  of  this  teaching  is  that  found  in  the 
Gospel  according  to  St.  Matthew,  ch.  25,  verses  32-46, 
where  eternal  happiness  is  awarded  to  those  who  have  fed 
the  hungry,  given  drink  to  the  thirsty,  received  the 
stranger,  covered  the  naked,  visited  the  sick,  and  called 
upon  the  imprisoned;  and  eternal  damnation  is  meted  out 
to  those  who  have  failed  in  these  respects.  The  principle 
that  ownership  is  stewardship,  that  the  man  who  possesses 
superfluous  goods  must  regard  himself  as  a  trustee  for 
the  needy,  is  fundamental  and  all-pervasive  in  the  teaching 
of  Christianity.  No  more  clear  or  concise  statement  of  it 
has  ever  been  given  than  that  of  St.  Thomas  Aquinas: 
"  As  regards  the  power  of  acquiring  and  dispensing  mate- 
rial goods,  man  may  lawfully  possess  them  as  his  own;  as 
regards  their  use,  however,  a  man  ought  not  to  look  upon 
them  as  his  own,  but  as  common,  so  that  he  may  readily 
minister  to  the  needs  of  others."  ^ 

Reason  likewise  enjoins  the  benevolent  distribution  of 
surplus  wealth.  It  reminds  the  proprietor  that  his  needy 
neighbours  have  the  same  nature,  the  same  faculties, 
capacities,  wants,  ajnd  destiny  as  himself.  They  are  his 
equals  and  his  brothers.  Reason,  therefore,  requires  that 
he  should  esteem  them  as  such,  love  them  as  such,  and 
treat  them  as  such;  that  he  should  love  them  not  merely 
by  well  wishing,  but  by  well  doing.  Since  the  goods  of 
the  earth  were  intended  by  the  Creator  for  the  common 
benefit  of  all  mankind,  the  possessor  of  a  surplus  is  rea- 
sonably required  to  use  it  in  such  a  way  that  this  original 
purpose  of  all  created  goods  will  be  fulfilled.  To  refuse 
is  to  treat  one's  less  fortunate  neighbour  as  something  dif- 
ferent from  and  less  than  oneself,  as  a  creature  whose 
claim  upon  the  common  bounty  of  nature  is  something  less 
than  one's  own.  Multiplying  words  will  not  make  these 
truths  plainer.  The  man  who  does  not  admit  that  the 
welfare  of  his  neighbour  is  of  equal  moral  worth  and  im- 

1 "  Summa  Theologica,"  2a.  2ae.,  q.  66,  a.  3. 


DUTY  OF  DISTRIBUTING  SUPERFLUOUS   WEALTH        305 

portance  with  his  own  welfare,  will  logically  refuse  to 
admit  that  he  is  under  any  obligation  of  distributing  his 
superfluous  goods.  The  man  who  does  acknowledge  this 
essential  equality  will  be  unable  to  find  any  logical  basis 
for  such  refusal. 

Is  this  obligation  one  of  charity  or  one  of  justice?  At 
the  outset  a  distinction  must  be  made  between  wealth  that 
has  been  honestly  acquired  and  wealth  that  has  come  into 
one's  possession  through  some  violation  of  rights.  The 
latter  kind  must,  of  course,  be  restored  to  those  persons 
who  have  been  wronged.  If  they  cannot  be  found  or 
identified  the  ill-gotten  gains  must  be  turned  over  to 
charitable  or  other  worthy  objects.  Since  the  goods  do 
not  belong  to  the  present  holder  by  any  valid  moral  title, 
they  should  be  given  to  those  persons  who  are  qualified  by 
at  least  the  claim  and  title  of  needs. 

Some  of  the  Fathers  of  the  Church  maintained  that  all 
superfluous  wealth,  whether  well  or  ill  gotten,  ought  to  be 
distributed  to  those  in  want.  St.  Basil  of  Caesarea: 
"  Will  not  the  man  who  robs  another  of  his  clothing  be 
called  a  thief?  Is  the  man  who  is  able  and  refuses  to 
clothe  the  naked  deserving  of  any  other  appellation?  The 
bread  that  you  withhold  belongs  to  the  hungry;  the  cloak 
that  you  retain  in  your  chest  belongs  to  the  naked ;  the  shoes 
that  are  decaying  in  your  possession  belong  to  the  shoe- 
less ;  the  gold  that  you  have  hidden  in  the  ground  belongs 
to  the  indigent.  Wherefore,  as  often  as  you  were  able  to 
help  men  and  refused,  so  often  you  did  them  wrong."  ^ 
St.  Augustine  of  Hippo :  "  The  superfluities  of  the  rich 
are  the  necessities  of  the  poor.  They  who  possess  super- 
fluities possess  the  goods  of  others."  ^  St.  Ambrose  of 
Milan:  "The  earth  belongs  to  all;  not  to  the  rich;  but 
those  who  possess  their  shares  are  fewer  than  those  who 
do  not.     Therefore,  you  are  paying  a  debt,  not  bestowing 

1 "  Patrologia  Graeca,"  vol.  31,  cols.  275,  278. 
2  "  Patrologia  Latina,"  vol.  iT^  col.  1922. 


306  DISTRIBUTIVE   JUSTICE 

a  gift."  ^  Pope  Gregory  the  Great :  "  When  we  give 
necessaries  to  the  needy,  we  do  not  bestow  upon  them  our 
goods;  we  return  to  them  their  own;  we  pay  a  debt  of  jus- 
tice rather  than  of  mercy."  ^ 

The  great  systematiser  of  theology  in  the  thirteenth 
,  century,  St.  Thomas  Aquinas,  who  is  universally  recog- 
nised as  the  most  authoritative  private  teacher  in  the 
Church,  stated  the  obligation  of  distribution  in  less  ex- 
treme and  more  scientific  terms :  "  According  to  the 
order  of  nature  instituted  by  Divine  Providence,  the  goods 
of  the  earth  are  designed  to  supply  the  needs  of  men.  The 
division  of  goods  and  their  appropriation  through  human 
law  do  not  thwart  this  purpose.  Therefore,  the  goods 
which  a  man  has  in  superfluity  are  due  by  the  natural  law 
to  the  sustenance  of  the  poor."  ^ 

That  this  is  the  official  teaching  of  the  Church  to-day  is 
evident  from  the  words  of  Pope  Leo  XIII :  "  When  one 
has  provided  sufficiently  for  one's  necessities  and  the  de- 
mands of  one's  state  of  life,  there  is  a  duty  to  give  to  the 
indigent  out  of  what  remains.  It  is  a  duty  not  of  strict 
justice,  save  in  case  of  extreme  necessity,  but  of  Chris- 
tian charity."  ^  Nearly  thirteen  years  earlier,  the  same 
Pope  had  written :  "  The  Church  lays  the  rich  under  strict 
command  to  give  their  superfluity  to  the  poor."  ^ 

The  only  difference  between  the  Fathers  and  Pope  Leo 
XIII  and  St.  Thomas  on  this  question  has  reference  to 
the  precise  nature  of  the  obligation.  According  to  the 
Fathers,  the  duty  of  distribution  would  seem  to  be  a  duty 
of  justice.  In  the  passage  quoted  above  from  St.  Thomas, 
superfluities  are  said  to  "  belong,"  or  to  be  "  due"  ("  de- 

1 "  Patrologia  Latina,"  vol.  14,  col.  747. 

2  "  Patrologia  Latina,"  vol.  ^^,  col.  87.  These  and  several  other  ex- 
tracts of  like  tenor  may  be  found  in  Ryan's  "  Alleged  Socialism  of  the 
Church  Fathers,"  ch.  i ;  St.  Louis,  1913. 

3  Op.  cit.,  2a.  2ae.,  q.  66,  a.  7. 

4  Encyclical,  "  On  the  Condition  of  Labour,"  May  15,  1891. 

^  Encyclical,  "  On  Socialism,  Communism,  Nihilism,"  Dec.  28,  1878. 


DUTY   OF  DISTRIBUTING   SUPERFLUOUS   WEALTH       307 

betur  ")  to  the  needy;  but  the  particular  moral  precept  that 
applies  is  not  specified.  In  another  place,  however,  the 
Angelic  Doctor  declares  that  almsgiving  is  an  act  of  char- 
ity.^ Pope  Leo  XIII  explicitly  says  that  the  obligation 
of  giving  is  one  of  charity,  "  except  in  extreme  cases." 
The  latter  phrase  refers  to  the  traditional  doctrine  that  a 
person  who  is  in  extreme  need ;  that  is,  in  immediate  dan- 
ger of  losing  life,  limb,  or  some  equivalent  personal  good, 
is  justified  in  the  absence  of  any  other  means  of  succour  in 
taking  from  his  neighbour  what  is  absolutely  necessary. 
Such  appropriation,  says  St.  Thomas,  is  not  properly 
speaking  theft;  for  the  goods  seized  belong  to  the  needy 
person,  **  inasmuch  as  he  must  sustain  life."  ^  In  a  word, 
the  mediaeval  and  the  modern  Catholic  teaching  would  make 
distribution  of  superfluous  goods  a  duty  of  justice  only  in 
extreme  situations,  while  the  Fathers  laid  down  no  such 
specific  limitation.  Nevertheless,  the  difference  is  less  im- 
portant than  it  appears  to  be  on  the  surface.  When  the 
Fathers  lived,  theology  had  not  been  systematised  nor 
given  a  precise  terminology;  consequently,  they  did  not 
always  make  exact  distinctions  between  the  different  classes 
of  virtues  and  obligations.  In  the  second  place,  the  Patris- 
tic passages  that  we  have  quoted,  and  others  of  like  import, 
were  mostly  contained  in  sermons  addressed  to  the  rich, 
and  consequently  were  expressed  in  hortatory  rather  than 
scientific  terms.  Moreover,  the  needs  of  the  time  which 
the  rich  were  exhorted  to  relieve  were  probably  so  urgent 
that  they  could  correctly  be  classed  as  extreme,  and  there- 
fore would  give  rise  to  an  obligation  of  justice  on  the  part 
of  those  who  possessed  superfluous  wealth. 

The  truly  important  fact  of  the  whole  situation  is  that 
both  the  Fathers  and  the  later  authorities  of  the  Church 
regard  the  task  of  distributing  superfluous  goods  as  one  of 
strict  moral  obligation,  which  in  serious  cases  is  binding 

1  Op.  cit.,  2a.  2ae.,  q.  32,  a.  I. 

2  Idem,  q.  66,  a.  7. 


308  DISTRIBUTIVE   JUSTICE 

under  pain  of  grievous  sin.  Whether  it  falls  under  the 
head  of  justice  or  under  that  of  charity,  is  of  no  great 
practical  consequence. 

The  Question  of  Distributing  All 

Is  a  man  obliged  to  distribute  all  his  superfluous  wealth  ? 
As  regards  the  support  of  human  life,  Catholic  moral  the- 
ologians distinguish  three  classes  of  goods :  first,  the  neces- 
saries of  life,  those  utilities  which  are  essential  to  a  healthy 
and  humane  existence  for  a  man  and  his  family,  regard- 
less of  the  social  position  that  he  may  occupy,  or  the 
standard  of  life  to  which  he  may  have  been  accustomed; 
second,  the  conventional  necessities  and  comforts,  which 
correspond  to  the  social  plane  upon  which  the  individual 
or  family  moves;  third,  those  goods  which  are  not  re- 
quired to  support  either  existence  or  social  position. 
Goods  of  the  second  class  are  said  to  be  necessary  as  re- 
gards conventional  purposes,  but  superfluous  as  regards 
the  maintenance  of  life,  while  those  of  the  third  class  are 
superfluous  without  qualification. 

No  obligation  exists  to  distribute  the  first  class  of  goods ; 
for  the  possessor  is  justified  in  preferring  his  own  primary 
and  fundamental  needs  to  the  equal  or  less  important  needs 
of  his  neighbours.  The  owner  of  goods  of  the  second 
class  is  under  obligation  to  dispense  them  to  persons  who 
are  in  extreme  need,  since  the  preservation  of  the  neigh- 
bour's life  is  more  important  morally  than  the  mainte- 
nance of  the  owner's  conventional  standard  of  living.  On 
the  other  hand,  there  is  no  obligation  of  giving  any  of 
these  goods  to  meet  those  needs  of  the  neighbour  which 
are  social  or  conventional.  Here,  again,  it  is  reasonable 
that  the  possessor  should  prefer  his  own  interests  to  the 
equal  interests  of  his  fellows.  Still  less  is  he  obliged  to 
expend  any  of  the  second  class  of  goods  for  the  relief  of 
ordinary  or  common  distress.  As  regards  the  third  class 
of  goods,  those  which  are  absolutely  superfluous,  the  pro- 


DUTY  OF  DISTRIBUTING  SUPERFLUOUS   WEALTH       309 

portion  to  be  distributed  is  indefinite,  depending  upon  the 
volume  of  need.  The  doctrine  of  the  moral  theologians 
on  the  subject  is  summed  up  in  the  following  paragraph. 

When  the  needs  to  be  supplied  are  '*  ordinary,"  or  "  com- 
mon " ;  that  is,  when  they  merely  expose  a  person  to  con- 
siderable and*  constant  inconvenience,  without  inflicting 
serious  physical,  mental,  or  moral  injury,  they  do  not  im- 
pose upon  any  man  the  obligation  of  giving  up  all  his 
superfluous  goods.  According  to  some  moral  theologians, 
the  possessor  fulfils  his  duty  in  such  cases  if  he  contributes 
that  proportion  of  his  surplus  which  would  suffice  for  the 
removal  of  all  such  distress,  provided  that  all  other  pos- 
sessors were  equally  generous;  according  to  others,  if  he 
gives  two  per  cent,  of  his  superfluity;  according  to  others, 
if  he  contributes  two  per  cent,  of  his  annual  income. 
These  estimates  are  intended  not  so  much  to  define  the 
exact  measure  of  obligation  as  to  emphasise  the  fact  that 
there  exists  some  degree  of  obligation;  for  all  the  moral 
theologians  agree  that  some  portion  of  a  man's  superfluous 
goods  ought  to  be  given  for  the  relief  of  ordinary  or  com- 
mon needs.  When,  however,  the  distress  is  grave ;  that  is, 
when  it  is  seriously  detrimental  to  welfare;  for  example, 
when  a  man  or  a  family  is  in  danger  of  falling  to  a  lower 
social  plane;  when  health,  morality,  or  the  intellectual  or 
religious  life  is  menaced, —  possessors  are  required  to  con- 
tribute as  much  of  their  superfluous  goods  as  is  necessary 
to  meet  all  such  cases  of  distress.  If  all  is  needed  all 
must  be  given.  In  other  words,  the  entire  mass  of  super- 
fluous wealth  is  morally  subject  to  the  call  of  grave  need. 
This  seems  to  be  the  unanimous  teaching  of  the  moral 
theologians.^     It  is  also  in  harmony  with  the  general  prin- 

lA  comprehensive,  though  brief,  discussion  of  this  question  and 
numerous  references  are  contained  in  Bouquillon,  "  De  Virtutibus 
Theologicis,"  pp.  332-348.  When  Pope  Leo  XIII  declared  that  the 
rich  are  obliged  to  distribute  "out  of"  their  superfluity,  he  did  not 
mean  that  they  are  free  to  give  only  a  portion  thereof.  The  particle 
"  de  "  in  his  statement,  "  officium  est  de  eo  quod  superat  gratificari  in- 


3IO  DISTRIBUTIVE   JUSTICE 

ciple  of  the  moral  law  that  the  goods  of  the  earth  should 
be  enjoyed  by  the  inhabitants  of  the  earth  in  proportion 
to  their  essential  needs.  In  any  rational  distribution  of 
a  common  heritage,  the  claims  of  health,  mind,  and  morals 
are  surely  superior  to  the  demands  of  luxurious  living, 
or  investment,  or  mere  accumulation. 

What  per  cent,  of  the  superfluous  incomes  in  the  United 
States  would  suffice  to  alleviate  all  the  existing  grave  and 
ordinary  distress?  Nothing  like  an  exact  answer  is  pos- 
sible, but  we  can  get  an  approximation  that  will  have  con- 
siderable practical  value.  From  the  estimates  of  family 
incomes  given  by  Professor  W.  I.  King,  it  appears  that  in 
1910  the  number  of  families  with  annual  incomes  of  less 
than  one  thousand  dollars  was  a  little  more  than  ten  and 
three  quarter  millions,  and  that  the  total  incomes  of  those 
families  receiving  more  than  ten  thousand  dollars  a  year 
amounted  to  a  little  more  than  three  and  three  quarter 
billions.^  If  each  of  the  latter  class  of  families  should 
expend  ten  thousand  dollars  per  year  for  the  needs  of  life 
and  social  position,  they  would  have  left  nearly  two  and 
three  quarter  billions  for  distribution  among  the  ten  and 
three  quarter  million  families  who  are  below  the  one  thou- 
sand dollar  level.  So  far  as  the  figures  of  Professor 
King's  table  enable  us  to  judge,  the  greater  part  if  not  all 
of  this  sum  would  be  required  to  bring  this  group  of  fam- 
ilies up  to  that  stajidard.  Possibly  an  income  of  one 
thousand  dollars  per  family  is  not  required  to  remove  all 
ordinary  and  grave  distress;  and  possibly  ten  thousand 
dollars  is  not  enough  for  the  reasonable  requirements  of 
some  families.     If  both  these  suppositions  are  true  they 

digentibus,"  is  not  correctly  translated  by  "some."  It  means  rather 
"  out  of,"  "  from,"  or  "  with  " ;  so  that  the  affluent  are  commanded  to 
dievote  their  superfluous  goods  indefinitely  to  the  relief  of  the  needy. 
In  the  Encyclical,  "  Quot  Apostolici  Muneris,"  he  used  the  expression, 
"gravissimo  divites  urget  praecepto  ut  quod  superest  pauperibus 
tribuant,"  which  clearly  declares  the  duty  of  distributing  all. 

1 "  The  Wealth  and  Income  of  the  People  of  the  United  States,"  pp. 
224-226. 


DUTY  OF  DISTRIBUTING  SUPERFLUOUS   WEALTH        3 II 

will  tend  to  cancel  each  other :  the  needs  to  be  met  will  be 
less,  but  the  superfluous  income  to  be  distributed  will  be 
less  also.  Whatever  be  the  minimum  and  maximum  limits 
of  family  income  that  approve  themselves  to  competent 
students,  the  conclusion  will  probably  be  inevitable  that 
the  greater  part  of  the  superfluous  income  of  the  well-to-do 
and  the  rich  would  be  required  to  abolish  all  grave  and 
ordinary  need. 

Some  Objections 

The  desirability  of  such  a  thoroughgoing  distribution 
of  superfluous  incomes  appears  to  be  refuted  by  the  fact 
that  a  considerable  part  of  the  capital  and  organising  abil- 
ity that  function  in  industry  is  dependent  upon  the  pos- 
session of  superfluous  goods  by  the  richer  classes.  That 
surplus  of  the  larger  incomes  which  is  not  consumed  or 
given  away  by  its  receivers  at  present,  constitutes  no  small 
portion  of  the  whole  supply  of  savings  annually  converted 
into  capital.  Were  all  of  it  to  be  withdrawn  from  indus- 
try and  distributed  among  the  needy,  the  process  might 
involve  more  harm  than  good.  Moreover,  the  very  large 
industrial  enterprises  are  initiated  and  carried  on  by  men 
who  have  themselves  provided  a  considerable  share  of  the 
necessary  funds.  Without  these  large  masses  of  personal 
capital,  they  would  have  much  more  difficulty  in  organis- 
ing these  great  enterprises,  and  would  be  unable  to  exercise 
their  present  dominating  control. 

To  the  first  part  of  this  objection  we  may  reply  that  the 
distribution  of  superfluous  goods  need  not  involve  any 
considerable  withdrawal  of  existing  capital  from  industry. 
The  giving  of  large  amounts  to  institutions  and  organisa- 
tions, as  distinguished  from  needy  individuals,  might  mean 
merely  a  transfer  of  capital  from  one  holder  to  another; 
for  example,  the  stocks  and  bonds  of  corporations.  The 
capital  would  be  left  intact,  the  only  change  being  in  the 
persons  that  would  thenceforth  receive  the  interest.     Small 


312  DISTRIBUTIVE   JUSTICE 

donations  could  come  out  of  the  possessor's  income. 
Moreover,  there  is  no  reason  why  the  whole  of  the  distri- 
bution could  not  be  made  out  of  income  rather  than  out  of 
capital.  While  the  givers  would  still  remain  possessed  of 
superfluous  wealth,  they  would  have  handed  over  to  needy 
objects,  persons,  and  causes  the  thing  that  in  modern  times 
constitutes  the  soul  and  essence  of  wealth;  namely,  its 
annual  revenues. 

Nevertheless,  the  distribution  from  income  would  ap- 
parently check  the  necessary  increase  of  capital,  lessen 
unduly  the  supply  of  capital  for  the  future.  Were  all,  or 
the  greater  part  of  superfluous  incomes  devoted  to  benevo- 
lent objects  it  would  be  used  up  for  consumption  goods; 
such  as,  food,  clothing,  housing,  hospitals,  churches, 
schools.  Would  not  this  check  to  the  increase  of  capital 
cause  serious  injury  to  society? 

New  investment  would  not  be  diminished  by  an  amount 
equal  to  the  whole  amount  of  income  transferred  to  ob- 
jects of  benevolence.  For  the  improved  position  of  the 
poorer  classes  that  had  shared  in  the  distribution  would 
enable  them  to  increase  their  productive  power  and  their 
resources,  and  therefore  to  save  money  and  convert  it  into 
capital.  Again,  their  increased  consuming  power  would 
augment  the  demand  for  goods,  bring  about  a  larger  use  of 
existing  capital  instruments,  and  therefore  lead  to  an  en- 
largement of  the  community's  capacity  for  saving.  Thus, 
the  new  saving  and  capital  would,  partially  at  least,  take 
the  place  of  that  which  was  formerly  provided  by  the  pos- 
sessors of  surplus  income.  In  so  far  as  a  net  diminution 
occurred  in  the  community's  supply  of  capital,  it  would 
probably  be  more  than  offset,  from  the  viewpoint  of  social 
welfare,  by  the  better  diffusion  of  goods  and  opportunities 
among  the  masses  of  the  population. 

The  second  difficulty  noted  above,  that  such  a  thorough 
distribution  of  superfluous  goods  would  lessen  consider- 


DUTY  OF  DISTRIBUTING  SUPERFLUOUS   WEALTH        313 

ably  the  power  of  the  captains  of  industry  to  organise  and 
operate  great  enterprises,  can  be  disposed  of  very  briefly. 
Those  who  made  the  distribution  from  income  rather  than 
from  invested  wealth,  would  still  retain  control  of  large 
masses  of  capital.  All,  however,  would  have  deprived 
themselves  of  the  power  to  enlarge  their  business  ven- 
tures by  turning  great  quantities  of  their  own  income  back 
into  industry.  But  if  their  ability  and  character  were 
such  as  to  command  the  confidence  of  investors,  they 
would  be  able  to  find  sufficient  capital  elsewhere  to  equip 
and  carry  on  any  sound  and  necessary  enterprise.  In  this 
case  the  process  of  accumulating  the  required  funds  would, 
indeed,  be  slower  than  when  they  used  their  own,  but  that 
would  not  be  an  unmixed  disadvantage.  When  the  busi- 
ness was  finally  established,  it  would  probably  be  more 
stable,  would  respond  to  a  more  definite  and  considerable 
need,  and  would  be  more  beneficial  socially,  inasmuch  as 
it  would  include  a  larger  proportion  of  the  population 
among  its  proprietors.  And  the  diminished  authority  and 
control  exercised  by  the  great  capitalist,  on  account  of  his 
diminished  ownership  of  the  stock,  would  in  the  long  run 
be  a  good  thing  for  society.  It  would  mean  the  curtail- 
ment of  a  species  of  power  that  is  easily  liable  to  abuse, 
wider  opportunities  of  industrial  leadership,  and  a  more 
democratic  and  stable  industrial  system. 

Only  a  comparatively  small  portion  of  the  superfluous 
goods  of  the  country  could  with  advantage  be  immediately 
and  directly  distributed  among  needy  individuals.  The 
greater  part  would  do  more  good  if  it  were  given  to  re- 
ligious and  benevolent  institutions  and  enterprises. 
Churches,  schools,  scholarships,  hospitals,  asylums,  housing 
projects,  insurance  against  unemployment,  sickness,  and 
old  age,  and  benevolent  and  scientific  purposes  generally,— 
constitute  the  best  objects  and  agencies  of  effective  distri- 
bution.    By  these  means  social  and  individual  efficiency 


314  DISTRIBUTIVE    JUSTICE 

would  be  so  improved  within  a  few  years  that  the  distress 
due  to  economic  causes  would  for  the  most  part  have  dis- 
appeared. 

The  proposition  that  men  are  under  moral  obligation  to 
give  away  the  greater  portion  of  their  superfluous  goods 
or  income  is,  indeed,  a  "  hard  saying."  Not  improbably 
it  will  strike  the  majority  of  persons  who  read  these  pages 
as  extreme  and  fantastic.  No  Catholic,  however,  who 
knows  the  traditional  teaching  of  the  Church  on  the  right 
use  of  wealth,  and  who  considers  patiently  and  seriously 
the  magnitude  and  the  meaning  of  human  distress,  will  be 
able  to  refute  the  proposition  by  reasoned  arguments.  In- 
deed, no  man  can  logically  deny  it  who  admits  that  men 
are  intrinsically  sacred,  and  essentially  equal  by  nature 
and  in  their  claims  to  a  reasonable  livelihood  from  the 
common  heritage  of  the  earth.  The  wants  that  a  man 
supplies  out  of  his  superfluous  goods  are  not  necessary  for 
rational  existence.  For  the  most  part  they  bring  him 
merely  irrational  enjoyment,  greater  social  prestige,  or  in- 
creased domination  over  his  fellows.  Judged  by  any  rea- 
sonable standard,  these  are  surely  less  important  than  those 
needs  of  the  neighbour  which  are  connected  with  humane 
living.  If  any  considerable  part  of  the  community  re- 
jects these  propositions  the  explanation  will  be  found  not 
in  a  reasoned  theory,  but  in  the  conventional  assumption 
that  a  man  may  do  what  he  likes  with  his  own.  This  as- 
sumption is  adopted  without  examination,  without  criti- 
cism, without  any  serious  advertence  to  the  great  moral 
facts  that  ownership  is  stewardship,  and  that  the  Creator 
intended  the  earth  for  the  reasonable  support  of  all  the 
children  of  men. 

A  False  Conception  of  Welfare  and  Superfluous  Goods 

If  all  the  present  owners  of  superfluous  goods  were  to 
carry  out  their  own  conception  of  the  obligation,  the 
amount  distributed  would  be  only  a  fraction  of  the  real 


DUTY  OF  DISTRIBUTING  SUPERFLUOUS   WEALTH        315 

superabundance.  Let  us  recall  the  definition  of  absolute 
superfluity  as,  that  portion  of  individual  or  family  income 
which  is  not  required  for  the  reasonable  maintenance  of 
life  and  social  position.  It  allows,  of  course,  a  reasonable 
provision  for  the  future.  But  the  great  majority  of  pos- 
sessors, as  well  as  perhaps  the  majority  of  others,  do  not 
interpret  their  needs,  whether  of  life  or  social  position,  in 
any  such  strict  fashion.  Those  who  acquire  a  surplus 
over  their  present  absolute  and  conventional  needs,  gen- 
erally devote  it  to  an  expansion  of  social  position.  They 
move  into  larger  and  more  expensive  houses,  thereby  in- 
creasing their  assumed  requirements,  not  merely  in  the 
matter  of  housing,  but  as  regards  food,  clothing,  amuse- 
ments, and  the  conventions  of  the  social  group  with  which 
they  are  affiliated.  In  this  way  the  surplus  which  ought 
to  have  been  distributed  is  all  absorbed  in  the  acquisition 
and  maintenance  of  more  expensive  standards.  All 
classes  of  possessors  adopt  and  act  upon  an  exaggerated 
conception  of  both  the  strict  and  the  conventional  neces- 
sities. In  taking  this  course,  they  are  merely  subscribing 
to  the  current  theory  of  life  and  welfare.  It  is  commonly 
assumed  that  to  be  worth  while  life  must  include  the  con- 
tinuous and  indefinite  increase  of  the  number  and  variety 
of  wants,  and  a  corresponding  growth  and  variation  in 
the  means  of  satisfying  them.  Very  little  endeavour  is 
made  to  distinguish  between  kinds  of  wants,  or  to  ar- 
range them  in  any  definite  scale  of  moral  importance. 
Desires  for  purely  physical  goods,  such  as,  food,  drink, 
adornment,  and  sense  gratifications  generally,  are  put  on 
the  same  level  with  the  demands  of  the  spiritual,  moral, 
and  intellectual  faculties.  The  value  and  importance  of 
any  and  all  wants  is  determined  mainly  by  the  criterion  of 
enjoyment.  In  the  great  majority  of  cases  this  means  a 
preference  for  the  goods  and  experiences  that  minister  to 
the  senses.  Since  these  satisfactions  are  susceptible  of  in- 
definite increase,  variety,   and  cost,  the  believer  in  this 


3l6  DISTRIBUTIVE   JUSTICE 

theory  of  life- values  readily  assumes  that  no  practical 
limit  can  be  set  to  the  amount  of  goods  or  income  that  will 
be  required  to  make  life  continuously  and  progressively 
worth  living.  Hence  the  question  whether  he  has  super- 
fluous goods,  how  much  of  a  surplus  he  has,  or  how  much 
he  is  obliged  to  distribute,  scarcely  occurs  to  him  at  all. 
Everything  that  he  possesses  or  is  likely  to  possess,  is  in- 
cluded among  the  necessaries  of  life  and  social  position. 
He  adopts  as  his  working  theory  of  life  those  propositions 
which  were  condemned  as  "  scandalous  and  pernicious  " 
by  Pope  Innocent  XI  in  1679:  "It  is  scarcely  possible 
to  find  among  people  engaged  in  worldly  pursuits,  even 
among  kings,  goods  that  are  superfluous  to  social  position. 
Therefore,  hardly  any  one  is  bound  to  give  alms  from  this 
source." 

The  practical  consequences  of  this  false  conception  of 
welfare  are  naturally  most  conspicuous  among  the  rich, 
especially  the  very  rich,  but  they  are  also  manifest  among 
the  comfortable  and  middle  classes.  In  every  social  group 
above  the  limit  of  very  moderate  circumstances,  too  much 
money  is  spent  for  material  goods  and  enjoyments,  and 
too  little  for  the  intellectual,  religious,  and  altruistic  things 
of  life. 

The  True  Conception  of  Welfare 

Tnis  working  creed  of  materialism  is  condemned  by 
right  reason,  as  well  as  by  Christianity.  The  teaching  of 
Christ  on  the  worth  of  material  goods  is  expressed  sub- 
stantially in  the  following  texts :  "  Woe  to  you  rich." 
"Blessed  are  you  poor."  "  Lay  not  up  for  yourselves 
treasures  on  earth."  "  For  a  man's  life  consisteth  not  in 
the  abundance  of  things  that  he  possesseth."  "  Be  not 
solicitous  as  to  what  you  shall  eat,  or  what  you  shall  drink, 
or  what  you  shall  put  on."  "  Seek  ye  first  the  kingdom 
of  God  and  his  justice,  and  all  these  things  shall  be  added 
unto   you."     "  You  cannot   serve   God  and   Mammon." 


DUTY  OF  DISTRIBUTING  SUPERFLUOUS   WEALTH        317 

"If  thou  wouldst  be  perfect,  go,  sell  what  thou  hast  and 
give  to  the  poor,  and  come  follow  me."  Reason  informs 
us  that  neither  our  faculties  nor  the  goods  that  satisfy 
them  are  of  equal  moral  worth  or  importance.  The  in- 
tellectual and  spiritual  faculties  are  essentially  and  intrin- 
sically higher  than  the  sense  faculties.  Only  in  so  far  as 
they  promote,  either  negatively  or  positively,  the  develop- 
ment of  the  mind  and  soul  have  the  senses  any  reasonable 
claim  to  satisfaction.  They  have  no  value  in  themselves; 
they  are  merely  instruments  to  the  welfare  of  the  spirit, 
the  intellect,  and  the  disinterested  will.  Right  life  con- 
sists, not  in  the  indefinite  satisfaction  of  material  wants, 
but  in  the  progressive  endeavour  to  know  the  best  that  is 
to  be  known,  and  to  love  the  best  that  is  to  be  loved ;  that 
is,  God  and  His  creatures  in  the  order  of  their  importance. 
The  man  who  denies  the  intrinsic  superiority  of  the  soul 
to  the  senses,  who  puts  sense  gratifications  on  the  same 
level  of  importance  as  the  activities  of  mind,  and  spirit, 
and  disinterested  will,  logically  holds  that  the  most  degrad- 
ing actions  are  equally  good  and  commendable  with  those 
which  mankind  approves  as  the  noblest.  His  moral  stand- 
ard does  not  dififer  from  that  of  the  pig,  and  he  himself  is 
on  no  higher  moral  level  than  the  pig. 

Those  who  accept  the  view  of  life  and  welfare  taught  by 
Christianity  and  reason  cannot,  if  they  take  the  trouble  to 
consider  the  matter,  avoid  the  conclusion  that  the  amount 
of  material  goods  which  can  be  expended  in  the  rational 
and  justifiable  satisfaction  of  the  senses,  is  very  much 
smaller  than  is  to-day  assumed  by  the  great  majority  of 
persons.  Somewhere  between  five  and  ten  thousand  dol- 
lars a  year  lies  the  maximum  expenditure  that  any  family 
can  reasonably  devote  to  its  material  wants.  This  is  inde- 
pendent of  the  outlay  for  education,  religion,  and  charity, 
and  the  things  of  the  mind  generally.  In  the  overwhelm- 
ing majority  of  cases  in  which  more  than  five  to  ten  thou- 
sand dollars  are  expended  for  the  satisfaction  of  material 


3l8  DISTRIBUTIVE   JUSTICE 

needs,  some  injury  is  done  to  the  higher  life.  The  inter- 
ests of  health,  intellect,  spirit,  or  morals  would  be  better 
promoted  if  the  outlay  for  material  things  were  kept  below 
the  specified  limit. 

The  distribution  advocated  in  this  chapter  is  obviously 
no  substitute  for  justice  or  the  deeds  of  justice.  Inas- 
much, however,  as  complete  justice  is  a  long  way  from 
realisation,  a  serious  attempt  by  the  possessors  of  true 
superfluous  goods  to  fulfil  their  obligations  of  distribu- 
tion would  greatly  counteract  and  soften  existing  injustice, 
inequality,  and  suffering.  Hence,  benevolent  giving  de- 
serves a  place  in  any  complete  statement  of  proposals  for 
a  better  distribution  of  wealth.  Moreover,  we  are  not 
likely  to  make  great  advances  on  the  road  of  strict  justice 
until  we  acquire  saner  conceptions  of  welfare,  and  a  more 
effective  notion  of  brotherly  love.  So  long  as  men  put 
the  senses  above  the  soul,  they  will  be  unable  to  see  clearly 
what  is  justice,  and  unwilling  to  practise  the  little  that  they 
are  able  to  see.  Those  who  exaggerate  the  value  of  sense 
gratifications  cannot  be  truly  charitable,  and  those  who  are 
not  truly  charitable  cannot  perform  adequate  justice.  The 
achievement  of  social  justice  requires  not  merely  changes 
in  the  social  mechanism,  but  a  change  in  the  social  spirit, 
a  reformation  in  men's  hearts.  To  this  end  nothing  could 
be  more  immediately  helpful  than  a  comprehensive  recog- 
nition of  the  stewardship  of  wealth,  and  the  duty  of 
distributing  superfluous  goods. 

REFERENCES  ON  SECTION  III 

Ely:     Monopolies  and  Trusts.     Macmillan;  1900. 
Van  Hise:     Concentration  and  Control.    Macmillan;  1912. 
Stevens  :     Industrial  Combinations  and  Trusts.     Macmillan  ;  1913. 
Russell:    Business,  the  Heart  of  the  Nation.    John  Lane;  1911. 
Garriguet  :     Regime  du  Travail.     Paris ;  1909. 

The  Social  Value  of  the  Gospel.    St.  Louis  ;  191 1. 
Hobson:    Work  and  Wealth,  a  Human  Valuation.    Macmillan;  1914. 
West  :    The  Inheritance  Tax.    New  York ;  1908. 


DUTY   OF   DISTRIBUTING   SUPERFLUOUS   WEALTH         319 

Seligman  :     Progressive  Taxation.     Princeton ;  1908. 

The  Income  Tax.     New  York;  1913. 
BouQUiLLON  :     De  Virtutibus  Theologicis.     Brugis ;  1890. 

Also,  the  works  of  Taussig,  Devas,  Hobson,  Antoine,  Pesch,  Carver, 
Vermeersch,  Nearing,  and  King  which  are  cited  in  connection  with  the 
introductory  chapter. 


SECTION  IV 
THE  MORAL  ASPECT  OF  WAGES 


CHAPTER  XXII 

SOME  UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE 

**  It  may  be  that  we  are  not  merely  chasing  a  will-o'-the- 
wisp  when  we  are  hunting  for  a  reasonable  wage,  but  we 
are  at  any  rate  seeking  the  unattainable." 

Thus  wrote  Professor  Frank  Haight  Dixon  in  a  paper 
read  at  the  twenty-seventh  annual  meeting  of  the  Amer- 
ican Economic  Association,  December,  1914.  Whether 
he  reflected  the  opinion  of  the  majority  of  the  economists, 
he  at  least  gave  expression  to  a  thought  that  has  frequently 
suggested  itself  to  every  one  who  has  gone  into  the  wage 
question  free  from  prejudices  and  preconceived  theories. 
One  of  the  most  palpable  indications  of  the  difficulty  to 
which  Professor  Dixon  refers  is  the  number  of  doctrines 
concerning  wage  justice  that  have  been  laboriously  built 
up  during  the  Christian  era,  and  that  have  failed  to  approve 
themselves  to  the  majority  of  students  and  thinkers.  In 
the  present  chapter  the  attempt  is  made  to  set  forth  some 
of  the  most  important  of  these  doctrines,  and  to  show 
wherein  they  are  defective.  They  can  all  be  grouped 
under  the  following  heads :  The  Prevailing-Rate  Theory ; 
Exchange-Equivalence  Theories;  and  the  Productivity 
Theories. 

I.  The  Prevailing-Rate  Theory 

This  is  not  so  much  a  systematic  doctrine  as  a  rule  of 
expediency  devised  to  meet  concrete  situations  in  the  ab- 

323 


324  DISTRIBUTIVE   JUSTICE 

sence  of  any  better  guiding  principle.  Both  its  basis  and 
its  nature  are  well  exemplified  in  the  following  extract 
from  the  "  Report  of  the  Board  of  Arbitration  in  the 
Matter  of  the  Controversy  Between  the  Eastern  Railroads 
and  the  Brotherhood  of  Locomotive  Engineers  :"^  "  Pos- 
sibly there  should  be  some  theoretical  relation  for  a  given 
branch  of  industry  between  the  amount  of  the  income  that 
should  go  to  labour  and  the  amount  that  should  go  to 
capital;  and  if  this  question  were  decided,  a  scale  of  wages 
might  be  devised  for  the  different  classes  of  employes 
which  would  determine  the  amount  rightly  absorbed  by 
labour.  .  .  .  Thus  far,  however,  political  economy  is  un- 
able to  furnish  such  a  principle  as  that  suggested.  There 
is  no  generally  accepted  theory  of  the  division  between 
capital  and  labour.  .  .  . 

"  What,  then,  is  the  basis  upon  which  a  judgment  may 
be  passed  as  to  whether  the  existing  wage  scale  of  the 
engineers  in  the  Eastern  District  is  fair  and  reasonable? 
It  seems  to  the  Board  that  the  only  practicable  basis  is  to 
compare  the  rates  and  earnings  of  engineers  in  the  East- 
ern District  with  those  of  engineers  in  the  Western  and 
Southern  Districts,  and  with  those  of  other  classes  of  rail- 
way employes." 

Six  of  the  seven  men  composing  this  board  of  arbitra- 
tion subscribed  to  this  statement.  Of  the  six  one  is  the 
president  of  a  great  state  university,  another  is  a  successful 
and  large-minded  merchant,  the  third  is  a  great  building 
contractor,  the  fourth  is  a  distinguished  lawyer,  the  fifth 
is  a  prominent  magazine  editor,  and  the  sixth  is  a  railway 
president.  The  dissenting  member  represented  the  em- 
ployes. Since  the  majority  could  not  find  in  any  generally 
accepted  theory  a  principle  to  determine  the  proper  division 
of  the  product  between  capital  and  labour,  they  were  per- 
haps justified  in  falling  back  upon  the  practical  rule  that 
they  adopted. 

1  Page  47. 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       325 

Not  in  Harmony  with  Justice 

From  the  viewpoint  of  justice,  however,  this  rule  or 
standard  is  utterly  inadequate.  It  is  susceptible  of  two 
interpretations.  "  Wages  prevailing  elsewhere,"  may 
mean  either  the  highest  rates  or  those  most  frequently  oc- 
curring. According  to  the  latter  understanding,  only  those 
wages  which  were  below  the  majority  rates  should  be 
raised,  while  all  those  above  that  level  ought  to  be  lowered. 
In  almost  all  cases  this  would  mean  a  reduction  of  the 
highest  wages,  as  these  are  usually  paid  only  to  a  minority 
of  the  workers  of  any  grade.  The  adoption  of  the  highest 
existing  rates  as  a  standard  would  involve  no  positive 
losses,  but  it  would  set  a  rigid  limit  to  all  possible  gains 
in  the  future.  According  to  either  interpretation  of  the 
prevailing  rate,  the  increases  in  wages  which  a  powerful 
labour  union  seeks  to  obtain  are  unjust  until  they  have 
been  established  as  the  prevailing  rates.  Thus,  the  attor- 
ney for  the  street  railways  of  Chicago  dissented  from  the 
increases  in  wages  awarded  to  the  employes  by  the  majority 
of  the  board  of  arbitration  in  the  summer  of  191 5  because, 
"  these  men  are  already  paid  not  only  a  fair  wage  but  a 
liberal  wage,  when  the  wages  in  the  same  employment 
and  the  living  conditions  in  other  large  cities  are  taken 
into  consideration,  or  when  comparison  is  made  of  these 
men's  annual  earnings  with  the  earnings  in  any  comparable 
line  of  work  in  the  city  of  Chicago."  ^  In  other  words, 
the  dominant  thing  is  always  the  right  thing.  Justice  is 
determined  by  the  preponderance  of  economic  force. 
Now,  a  rule  such  as  this,  which  condemns  improvement 
until  improvement  has  somehow  become  general,  which 
puts  a  premium  upon  physical  and  intellectual  strength, 
and  which  disregards  entirely  the  moral  claims  of  human 
needs,  efforts,  and  sacrifices,  is  obviously  not  an  adequate 
measure  of  either  reason  or  justice.  And  we  may  well 
1  The  Chicago  Daily  Tribune,  July  17,  1915. 


326  DISTRIBUTIVE   JUSTICE 

doubt  that  it  would  be  formally  accepted  as  such  by  any 
competent  and  disinterested  student  of  industrial  relations. 

II.  Exchange-Equivalence  Theories 

According  to  these  theories,  the  determining  factor  of 
wage  justice  is  to  be  found  in  the  wage  contract.  The 
basic  idea  is  the  idea  of  equality,  inasmuch  as  equality  is  the 
fundamental  element  in  the  concept  of  justice.  The  prin-  , 
ciple  of  justice  requires  that  equality  should  be  maintained 
between  what  is  owed  to  a  person  and  what  is  returned  to 
him,  between  the  kinds  of  treatment  accorded  to  different 
persons  in  the  same  circumstances.  Similarly  it  requires 
that  equality  should  obtain  between  the  things  that  are 
exchanged  in  onerous  contracts.  An  onerous  contract  is 
one  in  which  both  parties  undergo  some  privation,  and 
neither  intends  to  confer  a  gratuity  upon  the  other.  Each 
exchanger  desires  to  obtain  the  full  equivalent  of  the  thing 
that  he  transfers.  Since  each  is  equal  in  personal  dignity 
an  intrinsic  worth  to  the  other,  each  has  a  strict  right  to 
this  full  equivalent.  Owing  to  the  essential  moral  equality 
of  all  men,  no  man  has  a  right  to  make  of  another  a  mere 
instrument  to  his  own  interests  through  physical  force  or 
through  an  onerous  contract.  Men  have  equal  rights  not 
only  to  subsist  upon  the  earth,  but  to  receive  benefits  from 
the  exchange  of  goods. 

The  Rule  of  Equal  Gains 

The  agreement  between  employer  and  employe  is  an 
onerous  contract ;  hence  it  ought  to  be  made  in  such  terms 
that  the  things  exchanged  will  be  equal,  that  the  remunera- 
tion will  be  equal  to  the  labour.  How  can  this  equiva- 
lence be  determined  and  ascertained?  Not  by  a  direct 
comparison  of  the  two  objects,  work  and  pay,  for  their 
differences  render  them  obviously  incommensurable. 
Some  third  term,  or  standard,  of  comparison  is  required 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       327 

in  which  both  objects  can  find  expression.  One  such 
standard  is  individual  net  advantage.  Inasmuch  as  the 
aim  of  the  labour  contract  is  reciprocal  gain,  it  is  natural 
to  infer  that  the  gains  ought  to  be  equal  for  the  two  parties. 
Net  gain  is  ascertained  by  deducting  in  each  case  the  utility 
transferred  from  the  utility  received;  in  other  words,  by 
deducting  the  privation  from  the  gross  return.  The  good 
received  by  the  employer  when  diminished  by  or  weighed 
against  the  amount  that  he  pays  in  wages  should  be  equal 
to  the  good  received  by  the  labourer  when  diminished  by  or 
weighed  against  the  inconvenience  that  he  undergoes 
through  the  expenditure  of  his  time  and  energy.  Hence 
the  contract  should  bring  to  employer  and  employe  equal 
amounts  of  net  advantage  or  satisfaction. 

Plausible  as  this  rule  may  appear,  it  is  impracticable, 
inequitable,  and  unjust.  In  the  vast  majority  of  labour 
contracts  it  is  impossible  to  know  whether  both  parties 
obtain  the  same  quantity  of  net  advantage.  The  gains  of 
the  employer  can,  indeed,  be  frequently  measured  in  terms 
of  money,  being  the  difference  between  the  wages  paid  to 
and  the  specific  product  turned  out  by  the  labourer.  In 
the  case  of  the  labourer  no  such  process  of  deduction  is 
possible ;  for  advantage  and  expenditure  are  incommensur- 
able. We  cannot  subtract  the  labourer's  privation,  that  is, 
his  expenditure  of  time  and  energy,  from  his  gross  ad- 
vantage, that  is,  his  wages.  How  can  we  know  or  measure 
the  net  benefit  obtained  by  a  man  who  shovels  sand  ten 
hours  for  a  wage  of  two  dollars?  How  can  we  deduct 
his  pain-cost  from  or  weigh  it  against  his  compensation? 

So  far  as  the  two  sets  of  advantages  are  comparable  at 
all,  those  of  the  employe  would  seem  to  be  always  greater 
than  those  of  the  employer.  A  wage  of  seventy-five  cents 
a  day  enables  the  labourer  to  satisfy  the  most  important 
wants  of  life.  Weighed  against  this  gross  advantage,  his 
pain-cost  of  toil  is  relatively  insignificant.  His  net  advan- 
tage is  the  greatest  that  a  man  can  enjoy,  the  continuation 


328  DISTRIBUTIVE   JUSTICE 

of  his  existence.  The  net  advantage  received  by  the  em- 
ployer from  such  a  wage  contract  is  but  a  few  cents,  the 
equivalent  of  a  cigar  or  two.  Even  if  the  wage  be  raised 
to  the  highest  level  yet  reached  by  any  wage  earner,  the 
net  advantage  to  the  labourer,  namely,  his  livelihood,  will 
be  greater  than  the  net  advantage  to  the  employer  from 
that  single  contract.  Moreover,  the  sum  total  of  an  em- 
ployer's gains  from  all  his  labour  contracts  is  less  quan- 
titatively than  the  sum  total  of  the  gains  obtained  by  all 
his  employes.  The  latter  gains  provide  for  many  liveli- 
hoods, the  former  for  only  one.  Again,  no  general  rate 
of  wages  could  be  devised  which  would  enable  all  the 
members  of  a  labour  group  to  gain  equally.  Differences 
in  health,  strength,  and  intelligence  would  cause  differ- 
ences in  the  pain-cost  involved  in  a  given  amount  of 
labour;  while  differences  in  desires,  standards  of  living, 
and  skill  in  spending  would  bring  about  differences  in  the 
satisfactions  derived  from  the  same  compensation.  Fi- 
nally, various  employers  would  obtain  various  money  gains 
from  the  same  wage  outlay,  and  various  advantages  from 
the  same  money  gains.  Hence  if  the  rule  of  equality  of 
net  advantages  were  practicable  it  would  be  inequitable. 
It  is  also  fundamentally  unjust  because  it  ignores  the 
moral  claims  of  needs,  efforts,  and  sacrifices  as  regards  the 
labourer.  As  we  have  seen  in  the  chapter  on  profits  in 
competitive  conditions,  and  as  we  shall  have  occasion  to 
recognise  again  in  a  later  chapter,  no  canon  or  scheme  of 
distributive  justice  is  acceptable  that  does  not  give  ade- 
quate consideration  to  these  fundamental  attributes  of 
human  personality. 

The  Rule  of  Free  Contract 

Another  form  of  the  exchange  equivalence  theory  would 
disregard  the  problem  of  equality  of  gains,  and  assume 
that  justice  is  realised  whenever  the  contract  is  free  from 
force  or  fraud.     In  such  circumstances  both  parties  gain 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       329 

something,  and  presumably  are  satisfied;  otherwise,  they 
would  not  enter  the  contract.  Probably  the  majority  of 
employers  regard  this  rule  as  the  only  available  measure  of 
practicable  justice.  The  majority  of  economists  likewise 
subscribed  to  it  during  the  first  half  of  the  nineteenth 
century.  In  the  words  of  Henry  Sidgwick,  "  the  teaching 
of  the  political  economists  pointed  to  the  conclusion  that  a 
free  exchange,  without  fraud  or  coercion,  is  also  a  fair 
exchange."  ^  Apparently  the  economists  based  this  teach- 
ing on  the  assumption  that  competition  was  free  and  gen- 
eral among  both  labourers  and  employers.  In  other 
words,  the  rule  as  understood  by  them  was  probably  iden- 
tical with  the  rule  of  the  market  rate,  which  we  shall 
examine  presently.  It  is  not  at  all  likely  that  the  econo- 
mists here  referred  to  would  have  given  their  moral  ap- 
proval to  those  "  free  "  contracts  in  which  the  employer 
pays  starvation  wages  because  he  takes  advantage  of  the 
ignorance  of  the  labourer,  or  because  he  exercises  the 
power  of  monopoly. 

No  matter  by  whom  it  is  or  has  been  held,  the  rule  of 
free  contract  is  unjust.  In  the  first  place,  many  labour 
contracts  are  not  free  in  any  genuine  sense.  When  a 
labourer  is  compelled  by  dire  necessity  to  accept  a  wage 
that  is  insufficient  for  a  decent  livelihood,  his  consent  to 
the  contract  is  free  only  in  a  limited  and  relative  way.  It 
is  what  the  moralists  call  "  voluntarium  imperfectiim" 
It  is  vitiated  to  a  substantial  extent  by  the  element  of  fear, 
by  the  apprehension  of  a  cruelly  evil  alternative.  The 
labourer  does  not  agree  to  this  wage  because  he  prefers 
it  to  any  other,  but  merely  because  he  prefers  it  to  unem- 
ployment, hunger,  and  starvation.  The  agreement  to 
which  he  submits  in  these  circumstances  is  no  more  free 
than  the  contract  by  which  the  helpless  wayfarer  dyes  up 
his  purse  to  escape  the  pistol  of  the  robber.     While  the 

1  Article  on  "  Political  Economy  and  Ethics,"  in  Palgrave's  Dictionary 
of.  Political  Economy. 


330  DISTRIBUTIVE   JUSTICE 

latter  action  is  free  in  the  sense  that  it  is  chosen  in  prefer- 
ence to  a  violent  death,  it  does  not  mean  that  the  wayfarer 
gives,  or  intends  to  give,  the  robber  the  right  of  ownership 
in  the  purse.  Neither  should  the  labourer  who  from  fear 
of  a  worse  evil  enters  a  contract  to  work  for  starvation 
wages,  be  regarded  as  transferring  to  the  employer  the  full 
moral  right  to  the  services  which  he  agrees  to  render. 
Like  the  wayfarer,  he  merely  submits  to  superior  force. 
The  fact  that  the  force  imposed  upon  him  is  economic 
instead  of  physical  does  not  affect  the  morality  of  the 
transaction. 

To  put  the  matter  in  another  way,  the  equality  which 
justice  requires  is  wanting  in  an  oppressive  labour  con- 
tract because  of  the  inequality  existing  between  the  con- 
tracting parties.  In  the  words  of  Professor  Ely :  *'  Free 
contract  supposes  equals  behind  the  contract  in  order  that 
it  may  produce  equality."  ^ 

Again,  the  rule  of  free  contract  is  unjust  because  it 
takes  no  account  of  the  moral  claims  of  needs.  A  man 
whose  only  source  of  livelihood  is  his  labour  does  wrong 
if  he  accepts  a  starvation  wage  willingly.  Such  a  con- 
tract, however  free,  is  not  according  to  justice  because  it 
disregards  the  requirements  of  reasonable  life.  No  man 
has  a  right  to  do  this,  any  more  than  he  has  a  right  to 
perpetrate  self  mutilation  or  suicide. 

The  Rule  of  Market  Value 

A  third  method  of  interpreting  exchange  equivalence  is 
based  upon  the  concept  of  value.  Labour  and  compensa- 
tion are  thought  to  be  equal  when  the  value  of  one  is  equal 
to  the  value  of  the  other.  Then  the  contract  is  just  and 
the  compensation  is  just.  The  only  objection  to  these 
propositions  is  that  they  are  mere  truisms.  What  does 
value  mean,  and  how  is  it  to  be  determined?  If  it  is  to 
receive  an  ethical  signification;  if  the  value  of  labour  is 

1 "  Property  and  Contract,"  II,  603, 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       33 1 

to  be  understood  as  denoting  not  merely  the  value  that 
labour  will  command  in  a  market,  but  the  value  that  labour 
ought  to  have, —  the  statement  that  wages  should  equal  the 
value  of  labour  becomes  merely  an  identical  proposition. 
All  that  it  tells  us  is  that  wages  ought  to  be  what  they 
ought  to  be. 

In  its  simplest  economic  sense  value  denotes  purchasing 
power,  or  importance  in  exchange.  As  such,  it  may  be 
either  individual  or  social;  that  is,  it  may  mean  the  ex- 
change importance  attributed  to  a  commodity  by  an  in- 
dividual, or  that  attributed  by  a  social  group.  In  a 
competitive  society  social  value  is  formed  through  the 
higgling  of  the  market,  and  is  expressed  in  market  price. 

Now  individual  value  is  utterly  impracticable  as  a  meas- 
ure of  exchange  equivalence  in  the  wage  contract.  Since 
the  value  attributed  to  labour  by  the  employer  differs  in 
the  great  majority  of  instances  from  that  estimated  by  the 
labourer  himself,  it  is  impossible  to  determine  which  is  the 
true  value,  and  the  proper  measure  of  just  wages. 

The  doctrine  that  the  social  value  or  market  price  of 
labour  is  also  the  ethical  value  or  just  price,  is  sometimes 
called  the  classical  theory,  inasmuch  as  it  was  held,  at 
least  implicitly,  by  the  majority  of  the  early  economists 
of  both  France  and  England.^  Under  competitive  condi- 
tions, said  the  Physiocrats,  the  price  of  labour  as  of  all 
other  things  corresponds  to  the  cost  of  production ;  that  is, 
to  the  cost  of  subsistence  for  the  labourer  and  his  family. 
This  is  the  natural  law  of  wages,  and  being  natural  it  is 
also  just.  Adam  Smith  likewise  declared  that  competitive 
wages  were  natural  wages,  but  he  refrained  from  the  ex- 
plicit assertion  that  they  were  just  wages.  Nevertheless 
his  abiding  and  oft-expressed  faith  in  the  theory  that  men's 
powers  were  substantially  equal,  and  in  the  social  be- 
neficence of  free  competition,  implied  that  conclusion. 
Although  the  great  majority  of  his  followers  denied  that 
1  Cf.  "  L'  Idee  du  Juste  Salaire,"  by  Leon  Polier,  ch.  iii.    Paris ;  1903. 


332  DISTRIBUTIVE   JUSTICE 

economics  had  moral  aspects,  and  sometimes  asserted  that 
there  was  no  such  thing  as  just  or  unjust  wages,  their 
teaching  tended  to  convey  the  thought  that  competitively 
fixed  wages  were  more  or  less  in  accordance  with  justice. 
As  noted  above,  their  belief  in  the  efficacy  of  competition 
led  them  to  the  inference  that  a  free  contract  is  also  a  fair 
contract.  By  a  free  contract  they  meant  for  the  most 
part  one  that  is  made  in  the  open  market,  that  is  governed 
by  the  forces  of  supply  and  demand,  and  that,  conse- 
quently, expresses  the  social  economic  value  of  the  things 
exchanged. 

All  the  objections  that  have  been  brought  against  the 
rule  of  the  prevailing  rate  apply  even  more  strongly  to  the 
doctrine  of  the  market  rate.  The  former  takes  as  a  stand- 
ard the  scale  of  wages  most  frequently  paid  in  the  market, 
while  the  latter  approves  any  scale  that  obtains  in  any 
group  of  labourers  or  section  of  the  market.  Both  accept 
as  the  ultimate  determinant  of  wage  justice  the  prepon- 
derance of  economic  force.  Neither  gives  any  considera- 
tion to  the  moral  claims  of  needs,  efforts,  or  sacrifices. 
Unless  we  are  to  identify  justice  with  power,  might  with 
right,  we  must  regard  these  objections  as  irrefutable,  and 
the  market  value  doctrine  as  untenable. 

The  Mediccval  Theory 

Another  exchange-equivalence  theory  which  turns  upon 
the  concept  of  value  is  that  found  in  the  pages  of  the 
mediaeval  canonists  and  theologians.  But  it  interprets 
value  in  a  different  sense  from  that  which  we  have  just 
considered.  As  the  measure  of  exchange  equivalence  the 
mediaeval  theory  takes  objective  value,  or  true  value. 
However,  the  proponents  of  this  view  did  not  formally 
apply  it  to  wage  contracts,  nor  did  they  discuss  system- 
atically the  question  of  just  wages.  They  were  not  called 
upon  to  do  this;  for  they  were  not  confronted  by  any  con- 
siderable class  of  wage  earners.     In  the  country  the  num- 


SOME   UNACCEPTABLE   THEORIES   OF   WAGE-JUSTICE       333 

ber  of  persons  who  got  their  living  exclusively  as  employes 
was  extremely  small,  while  in  the  towns  the  working  class 
was  composed  of  independent  producers  who  sold  their 
wares  instead  of  their  labour. ^  The  question  of  fair  com- 
pensation for  the  town  workers  was,  therefore,  the  ques- 
tion of  a  fair  price  for  their  products.  The  latter  question 
was  discussed  by  the  mediaeval  writers  formally,  and  in 
great  detail.  Things  exchanged  should  have  equal  values, 
and  commodities  should  always  sell  for  the  equivalent  of 
their  values.  By  what  rule  was  equality  to  be  measured 
and  value  determined?  Not  by  the  subjective  apprecia- 
tions of  the  exchangers,  for  these  would  sometimes  sanc- 
tion the  most  flagrant  extortion.  Were  no  other  help 
available,  the  starving  man  would  give  all  he  possessed  for 
a  loaf  of  bread.  The  unscrupulous  speculator  could 
monopolise  the  supply  of  foodstuffs,  and  give  them  an 
exorbitantly  high  value  which  purchasers  would  accept 
and  pay  for  rather  than  go  hungry.  Hence  we  find  the 
mediaeval  writers  seeking  a  standard  of  objective  value 
which  should  attach  to  the  commodity  itself,  not  to  the 
varying  opinions  of  buyers  and  sellers. 

In  the  thirteenth  century  Albertus  Magnus  ^  and  Thomas 
Aquinas  ^  declared  that  the  proper  standard  was  to  be 
found  in  labour.  A  house  is  worth  as  many  shoes  as  the 
labour  embodied  in  the  latter  is  contained  in  the  labour 
embodied  in  the  former.  It  is  worthy  of  note  that  the 
diagram  which  Albertus  Magnus  presents  to  illustrate  this 
formula  of  value  and  exchange  had  been  used  centuries 
before  by  Aristotle.  It  is  likewise  noteworthy  that  this 
conception  of  ethical  value  bears  a  striking  resemblance  to 
the  theory  of  economic  value  upheld  by  Marxian  Socialists. 
However,  neither  Aristotle  nor  the  Schoolmen  asserted 
that  all  kinds  of  labour  had  equal  value. 

1  Polier,  op.  cit.,  pp.  33,  sq. ;  Ryan,  "  A  Living  Wage,"  pp.  26,  sq. 

2  "  Ethica,"  lib.  5,  tr.  2,  cap.  5. 

8  "Comment,  ad  Eth.,"  XXI,  172. 


334  DISTRIBUTIVE   JUSTICE 

Now  this  mediaeval  labour-measure  of  value  could  be 
readily  applied  only  to  cases  of  barter,  and  even  then  only 
when  the  value  of  different  kinds  of  labour  had  already 
been  determined  by  some  other  standard.  Accordingly  we 
find  the  mediaeval  writers  expounding  and  defending  a 
more  general  interpretation  of  objective  or  true  value. 

This  was  the  concept  of  normal  value;  that  is,  the  aver- 
age or  medium  amount  of  utility  attributed  to  goods  in 
the  average  conditions  of  life  and  exchange.  On  the  one 
hand,  it  avoided  the  excesses  and  the  arbitrariness  of  in- 
dividual estimates;  on  the  other  hand,  it  did  not  attribute 
to  value  the  characters  of  immutability  and  rigidity.  Con- 
trary to  the  assumptions  of  some  modern  writers,  the 
Schoolmen  never  said  that  value  was  something  as  fixedly 
inherent  in  goods  as  physical  and  chemical  qualities. 
When  they  spoke  of  "  intrinsic  "  value,  they  had  in  mind 
merely  the  constant  capacity  of  certain  commodities  to 
satisfy  human  wants.  Even  to-day  bread  has  always  the 
intrinsic  potency  of  alleviating  hunger,  regardless  of  all 
the  fluctuations  of  human  appraisement.  The  objectivity 
that  the  mediaeval  writers  ascribed  to  value  was  relative. 
It  assumed  normal  conditions  as  against  exceptional  con- 
ditions. To  say  that  value  was  objective  merely  meant 
that  it  was  not  wholly  determined  by  the  interplay  of 
supply  and  demand,  but  was  based  upon  the  stable  and 
universally  recognised  use-qualities  of  commodities  in  a 
society  where  desires,  needs,  and  tastes  were  simple  and 
fairly  constant  from  one  generation  to  another. 

How  or  where  was  this  relatively  objective  value  of 
goods  to  find  concrete  expression  ?  In  the  "  communis 
aestimatio,"  or  social  estimate,  declared  the  canonists. 
Objective  value  and  just  price  would  be  ascertained  prac- 
tically through  the  judgment  of  upright  and  competent 
men,  or  preferably  through  legally  fixed  prices.  But 
neither  the  social  estimate  nor  the  ordinances  of  lawmakers 


SOME   UNACCEPTABLE   THEORIES   OF   WAGE- JUSTICE       335 

were  authorised  to  determine  values  and  prices  arbitrarily. 
They  were  obliged  to  take  into  account  certain  objective 
factors.  In  the  thirteenth  and  fourteenth  centuries,  the 
factors  universally  recognised  as  determinative  were  the 
utility  or  use-qualities  of  goods,  but  especially  their  cost 
of  production.  Later  on,  in  the  sixteenth  and  seventeenth 
centuries,  risk  and  scarcity  were  given  considerable  promi- 
nence as  value  determinants.  Now  cost  of  production  in 
the  Middle  Ages  was  mainly  labour  cost;  hence  the  stand- 
ard of  value  was  chiefly  a  labour  standard.  Moreover, 
this  labour  doctrine  of  true  value  and  equality  in  exchanges 
was  strongly  reinforced  by  another  mediaeval  principle, 
according  to  which  labour  was  the  supreme  if  not  the  only 
just  title  to  rewards. 

How  was  labour  cost  to  be  measured,  and  the  differ- 
ent kinds  of  labour  evaluated?  By  the  necessary  and 
customary  expenditures  of  the  class  to  which  the  labourer 
belonged.  Mediaeval  society  was  composed  of  a  few  defi- 
nite, easily  recognised,  and  relatively  fixed  orders  or 
grades,  each  of  which  had  its  own  function  in  the  social 
hierarchy,  its  own  standard  of  living,  and  its  moral  right 
to  a  livelihood  in  accordance  with  that  standard.  Like  the 
members  of  the  other  orders,  the  labourers  were  conceived 
as  entitled  to  live  in  conformity  with  their  customary  class- 
requirements.  From  this  it  followed  that  the  needs  of  the 
labourer  became  the  main  determinant  of  the  cost  of  pro- 
duction, and  of  the  value  and  just  price  of  goods.  Inas- 
much as  the  standards  of  living  of  the  various  divisions  of 
the  workers  were  fixed  by  custom,  and  limited  by  the 
restricted  possibilities  of  the  time,  they  afforded  a  fairly 
definite  measure  of  value  and  price, —  much  more  definite 
than  the  standard  of  general  utility.  To  Langenstein,  vice 
chancellor  of  the  University  of  Paris  in  the  latter  half  of 
the  fourteenth  century,  the  matter  seemed  quite  simple; 
for  he  declared  that  every  one  could  determine  for  himself 


336  DISTRIBUTIVE   JUSTICE 

the  just  price  of  his  wares  by  referring  to  the  customary 
needs  of  his  rank  of  hfe.^ 

Nevertheless,  class  needs  are  not  and  cannot  be  a  stand- 
ard of  exchange-equivalence.  They  cannot  become  a  cri- 
terion of  equality,  a  common  denominator,  a  third  term  of 
comparison,  between  labour  and  wages.  When  we  say 
that  a  given  amount  of  wages  is  equal  to  a  given  content 
of  livelihood,  we  express  a  purely  economic,  positive,  and 
mathematical  relation :  when  we  say  that  a  given  amount 
of  labour  is  equal  to  a  given  content  of  livelihood,  we  are 
either  talking  nonsense  or  expressing  a  purely  ethical  rela- 
tion; that  is,  declaring  that  this  labour  ought  to  equal  this 
livelihood.  In  other  words,  we  are  introducing  a  fourth 
term  of  comparison;  namely,  the  moral  worth  or  personal 
dignity  of  the  labourer.  Thus,  we  have  not  a  single  and 
common  standard  to  measure  both  labour  and  wages,  and 
to  indicate  a  relation  of  equality  between  them.  While 
class  needs  directly  measure  wages,  they  do  not  measure 
labour,  either  quantitatively,  or  qualitatively,  or  under  any 
other  aspect  or  category. 

Aside  from  this  purely  theoretical  defect,  the  canonist 
doctrine  of  wage  justice  was  fairly  satisfactory  as  applied 
to  the  conditions  of  the  Middle  Ages.  It  assured  to  the 
labourer  of  that  day  a  certain  rude  comfort,  and  probably 
as  large  a  proportion  of  the  product  of  industry  as  was 
practically  attainable.  Nevertheless  it  is  not  a  universally 
valid  criterion  of  justice  in  the  matter  of  wages;  for  it 
makes  no  provision  for  those  labourers  who  deserve  a  wage 
in  excess  of  the  cost  of  living  of  their  class;  nor  does  it 
furnish  a  principle  by  which  a  whole  class  of  workers  can 
justify  their  advance  to  a  higher  standard  of  living.  It  is 
not  sufficiently  elastic  and  dynamic. 

1  Cf.  Polier,  op.  cit.,  pp.  66-75 ;  Ryan,  op.  cit,  pp.  93,  94. 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       337 

A  Modern  Variation  of  the  Medieval  Theory 

In  spite  of  its  fundamental  impossibility,  the  concept  of 
exchange-equivalence  still  haunts  the  minds  of  certain 
Catholic  writers.^  They  still  strive  to  get  a  formula  to 
express  equality  between  labour  and  remuneration.  Per- 
haps the  best  known  and  least  vulnerable  of  the  attempts 
made  along  this  line  is  that  defended  by  Charles  An- 
toine,  S.  J.^  Justice,  he  declares,  demands  an  objective 
equivalence  between  wages  and  labour;  and  objective 
equivalence  is  determined  and  measured  by  two  factors. 
The  remote  factor  is  the  cost  of  decent  living  for  the 
labourer;  the  proximate  factor  is  the  economic  value  of 
his  labour.  The  former  describes  the  minimum  to  which 
the  worker  is  entitled;  the  latter  comprises  perfect  and 
adequate  justice.  In  case  of  conflict  between  the  two 
factors,  the  first  is  determinative  of  and  morally  superior 
to  the  second;  that  is  to  say,  no  matter  how  small  the 
economic  value  of  labour  may  seem  to  be,  it  never  can 
descend  below  the  requisites  of  a  decent  livelihood. 

Now,  neither  of  these  standards  is  in  harmony  with  the 
principle  of  exchange-equivalence,  nor  capable  of  serving 
as  a  satisfactory  criterion  of  wage  justice.  Father 
Antoine  argues  that  labour  is  always  the  moral  equivalent 
of  a  decent  livelihood  because  the  worker  expends  his 
energies,  and  gives  out  a  part  of  his  life  in  the  service  of 
his  employer.  Unless  his  wage  enables  the  labourer  to 
replace  these  energies  and  conserve  his  life,  it  is  not  the 
equivalent  of  the  service.  If  the  wage  falls  short  of  this 
standard  the  labourer  gives  more  than  he  receives,  and 
the  contract  is  essentially  unjust.  In  this  conception  of 
equivalence,  energy  expended,  instead  of  cost  of  living,  be- 
comes the  term  of  comparison  and  the  common  measure 
of  labour  and  remuneration.     Energy  expended  is,  how- 

1  Cf .  Poller,  op.  cit.,  pp.  92-95. 

2  "  Cours  d'  ficonomie  Sociale,"  pp.  598,  sq. 


338  DISTRIBUTIVE   JUSTICE 

ever,  technically  incapable  of  providing  such  a  common 
standard;  for  it  does  not  measure  both  related  terms  in 
the  same  way.  The  service  rendered  to  the  employer  is 
the  effect  rather  than  the  equivalent  of  the  energy  ex- 
pended; and  the  compensation  is  a  means  to  the  replace- 
ment of  this  energy  rather  than  its  formal  equivalent. 
Moreover,  the  formula  does  not  even  furnish  an  adequate 
rational  basis  for  the  claim  to  a  decent  minimum  wage. 
A  wage  which  is  merely  adequate  to  the  replacement  of 
expended  energy  and  the  maintenance  of  life,  is  really 
inadequate  to  a  decent  livelihood.  Such  compensation 
would  cover  only  physical  health  and  strength,  leaving 
nothing  for  intellectual,  spiritual,  and  moral  needs.  As 
Father  Antoine  himself  admits  and  contends,  the  latter 
needs  are  among  the  elements  of  a  decent  livelihood,  and 
a  wage  which  does  not  make  reasonable  provision  for  them 
fails  to  comply  with  the  minimum  requirements  of  justice. 

The  second  factor  of  "  objective  equivalence  "  is  even 
more  questionable  than  the  first.  To  be  completely  just, 
says  Father  Antoine,  wages  must  be  not  merely  adequate 
to  a  decent  livelihood,  but  equivalent  to  the  "  economic 
value  of  the  labour"  ("la  valeur  economique  du  trav- 
ail ").  This  "economic  value"  is  determined  objectively 
by  the  cost  of  production,  the  utility  of  the  product,  and 
the  movement  of  supply  and  demand;  subjectively,  by  the 
judgment  of  employers  and  employes.  In  case  of  conflict 
between  these  two  measures  of  value,  and  in  case  of  un- 
certainty concerning  the  objective  measure,  the  decision  of 
the  subjective  determinant  must  always  prevail. 

These  statements  are  hopelessly  ambiguous  and  confus- 
ing. If  the  objective  measure  of  "  economic  value  "  is  to 
be  understood  in  a  purely  positive  way,  it  merely  means 
the  wages  that  actually  obtain  in  a  competitive  market. 
In  the  purely  positive  or  economic  sense,  the  utility  of 
labour  is  measured  by  what  it  will  command  in  the  market, 
the  movement  of  supply  and  demand  is  likewise  reflected 


SOME'  UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       339 

in  market  wages,  and  the  determining  effect  of  cost  of 
production  is  also  seen  in  the  share  that  the  market  awards 
to  labour  after  the  other  factors  of  production  have  taken 
their  portions  of  the  product.  In  other  words,  the 
"  economic  value  "  of  labour  is  simply  its  market  value. 
This,  however,  is  not  Father  Antoine's  meaning;  for  he 
has  already  declared  that  the  "  economic  value  "of  labour 
is  never  less  than  the  equivalent  of  a  decent  livelihood, 
whereas  we  know  that  the  market  value  often  falls  below 
that  level.  In  his  mind,  therefore,  "  economic  value  "  has 
an  ethical  signification.  It  indicates  at  least  the  requisites 
of  decent  living,  and  it  embraces  more  than  this  in  some 
cases.  When?  and  how  much  more?  Let  us  suppose  a 
business  so  prosperous  that  it  returns  liberal  profits  to  the 
employer  and  the  prevailing  rate  of  interest  on  the  capital, 
and  yet  shows  a  surplus  sufficient  to  give  all  the  labourers 
ten  dollars  a  day.  Is  "  cost  of  production  "  to  be  inter- 
preted here  as  allowing  only  the  normal  rate  of  profits  and 
interest  to  the  business  man  and  the  capitalist,  leaving  the 
residue  to  labour?  Or  is  it  to  be  understood  as  requiring 
that  the  surplus  be  divided  among  the  three  agents  of  pro- 
duction ?  In  other  words,  is  the  "  economic  value  "  of 
labour  in  such  cases  to  be  determined  by  some  ethical  prin- 
ciple which  tells  beforehand  how  much  the  other  agents 
than  labour  ought  to  receive?  If  so,  what  is  this  principle 
or  formula  ? 

None  of  these  questions  is  satisfactorily  answered  in 
Father  Antoine's  pages.  They  are  all  to  be  solved  by 
having  recourse  to  the  subjective  determinant  of  "  eco- 
nomic value";  namely,  the  judgment  of  employers  and 
employes.  Thus  his  proximate  factor  of  justice  in  wages, 
his  formula  of  complete  as  against  minimum  just  wages, 
turns  out  to  be  something  entirely  subjective,  and  more  or 
less  arbitrary.  It  is  in  no  sense  a  measure  of  the  equiva- 
lence between  work  and  pay. 

Moreover,   it   is   inadequate  as  a   measure  of  justice. 


340  DISTRIBUTIVE   JUSTICE 

Should  the  majority  of  both  employers  and  employes  fix 
the  "  economic  value  "  of  the  labour  of  carpenters  at  five 
dollars  a  day,  there  would  be  no  certainty  that  this  decision 
was  correct,  and  that  this  figure  represented  just  wages. 
Should  they  determine  upon  a  rate  of  fifty  dollars  a  day, 
we  could  not  be  sure  that  their  decision  was  unjust.  Un- 
doubtedly the  combined  judgment  of  employers  and  em- 
ployes will  set  a  fairer  wage  than  one  fixed  by  either  party 
alone,  since  it  will  be  less  one-sided;  but  there  is  no  suffi- 
cient reason  for  concluding  that  it  will  be  in  all  cases  com- 
pletely just.  Undoubtedly  employers  and  employes  know 
what  wages  an  industry  can  afford  at  prevailing  prices, 
on  the  assumption  that  business  ability  and  capital  are  to 
have  a  certain  rate  of  return;  but  there  is  no  certainty  that 
the  prevailing  prices  are  fair,  or  that  the  assumed  rates  of 
profits  and  interest  are  fair.  In  a  word,  the  device  is  too 
arbitrary. 

To  sum  up  the  entire  discussion  of  exchange-equivalence 
theories:  Their  underlying  concept  is  fundamentally  un- 
sound and  impracticable.  All  of  them  involve  an  attempt 
to  compare  two  entities  which  are  utterly  incommensurate. 
There  exists  no  third  term,  or  standard,  or  objective  fact, 
which  will  inform  men  whether  any  rate  of  wages  is  the 
equivalent  of  any  quantity  of  labour. 

III.  Productivity  Theories 

The  productivity  concept  of  wage  justice  appears  in  a 
great  variety  of  forms.  The  first  of  them  that  we  shall 
consider  is  advocated  mainly  by  the  Socialists,  and  is 
usually  referred  to  as  the  theory  of  the  "  right  to  the  whole 
product  of  labour."  ^ 

1  Poller,  op.  cit,  pp.  219^359 ;  Menger,  "  The  Right  to  the  Whole 
Produce  of  Labour  " ;  English  Translation.    London ;  1899. 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       34! 

Labour's  Right  to  the  Whole  Product 

We  have  seen  that  Adam  Smith's  belief  in  the  nor- 
mahty  and  beneficence  of  free  competition  would  have 
logically  led  him  to  the  conclusion  that  competitive  wages 
were  just;  and  we  know  that  this  doctrine  is  implicit  in 
his  writings.  On  the  other  hand,  his  theory  that  all  value 
is  determined  by  labour  would  seem  to  involve  the  infer- 
ence that  all  the  value  of  the  product  belongs  to  the 
labourer.  As  a  matter  of  fact,  Smith  restricted  this  con- 
clusion to  primitive  and  pre-capitalist  societies.  Appar- 
ently he,  and  his  disciples  in  an  even  larger  degree,  was 
more  interested  in  describing  the  supposed  beneficence  of 
competition  than  in  justifying  the  distribution  that  re- 
sulted from  the  competitive  process. 

The  early  English  Socialists  were  more  consistent.  In 
1793  William  Godwin,  whom  Anton  Menger  calls  "the 
first  scientific  Socialist  of  modern  times,"  laid  down  in 
substance  the  doctrine  that  the  labourer  has  a  right  to  the 
whole  product.-^  In  1805  Charles  Hall  formulated  and 
defended  the  doctrine  with  greater  precision  and  con- 
sistency.^ In  1824  the  doctrine  was  stated  more  funda- 
mentally, systematically,  and  completely  by  William 
Thompson.^  He  accepted  the  labour  theory  of  value  laid 
down  by  Adam  Smith,  and  formally  derived  therefrom  the 
ethical  conclusion  that  the  labourer  has  a  right  to  the  whole 
product.  "  Thompson  and  his  followers  are  only  original 
in  so  far  as  they  consider  rent  and  interest  to  be  unjust 
deductions,  which  violate  the  right  of  the  labourer  to  the 
whole  product  of  his  labour."  *  He  denounced  the  laws 
which  empowered  the  land  owner  and  the  capitalist  to 
appropriate  value  not  created  by  them,  and  gave  to  the 

1 "  Enquiry  Concerning  Political  Justice." 

2  "  On  the  Effects  of  Civilisation  on  the  People  of  European  States." 
8  "  An  Inquiry  Into  the  Principles  of  the  Distribution  of  Wealth  Most 
Conducive  to  Human  Happiness." 
*  Menger,  op.  cit.,  p.  56. 


342  DISTRIBUTIVE   JUSTICE 

value  thus  appropriated  the  name,  "  surplus  value."  In 
the  use  of  this  term  he  anticipated  Karl  Marx  by  several 
years.  His  doctrines  were  adopted  and  defended  by  many 
other  English  Socialist  writers,  and  were  introduced  into 
France  by  the  followers  of  Saint-Simon.  "  From  his 
works,"  says  Menger,  "  the  later  Socialists,  the  Saint- 
Simonians,  Proudhon,  and  above  all,  Marx  and  Rodbertus, 
have  directly  or  indirectly  drawn  their  opinions."  ^ 

Although  Saint-Simon  never  accepted  the  doctrine  of 
the  labourer's  right  to  the  whole  product,  his  disciples, 
particularly  Enfantin  and  Bazard,  taught  it  implicitly.  In 
a  just  social  state,  they  maintained,  every  one  would  be 
expected  to  labour  according  to  his  capacity,  and  would 
be  rewarded  according  to  his  product.^ 

Perhaps  the  most  theoretical  and  extreme  statement  of 
the  theory  that  we  are  considering  is  found  in  the  writings 
of  P.  J.  Proudhon.^  He  maintained  that  the  real  value  of 
products  was  determined  by  labour  time,  and  that  all  kinds 
of  labour  should  be  regarded  as  equally  effective  in  the 
value-creating  process,  and  he  advocated  therefore  equality 
of  wages  and  salaries.  For  the  realisation  of  this  ideal  he 
drew  the  outlines  of  a  semi-anarchic  social  order,  of  which 
the  main  feature  was  gratuitous  public  credit.  Neither  his 
theories  nor  his  proposals  ever  obtained  any  considerable 
number  of  adherents. 

A  milder  and  better  reasoned  form  of  the  theory  was 
set  forth  by  Karl  J.  Rodbertus.*  Professor  Wagner  calls 
him,  "  the  first,  the  most  original,  and  the  boldest  repre- 
sentative of  scientific  Socialism  in  Germany."  Yet,  as 
Menger  points  out,  Rodbertus  derived  many  of  his  doc- 
trines from  Proudhon  and  the  Saint-Simonians.  He  ad- 
mitted that  in  a  capitalist  society  the  value  of  commodities 

1  Op.  cit.,  p.  51. 

2  Cf .  Menger,  op.  cit.,  pp.  62-73. 

8  "  Qu'  est-ce  que  la  propriete  ou  recherches  sur  la  principe  du  droit 
et  du  gouvernment."     1840. 
*"Zur  Erkentniss  unserer  staatswirthschaftlichen  Zustande,"  1842. 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       343 

does  not  always  correspond  to  the  labour  embodied  in 
them,  and  that  different  kinds  of  labour  are  productive  in 
different  degrees.  Therefore,  he  had  recourse  to  the  con- 
cept of  a  normal,  or  average,  day's  labour  in  any  group, 
and  would  have  the  various  members  of  the  group  re- 
munerated with  reference  to  this  standard.  This  was  to 
be  brought  about  by  a  centralised  organisation  of  industry 
in  which  the  whole  product  would  ultimately  go  to  labour, 
and  the  share  of  the  individual  worker  would  be  deter- 
mined by  his  contribution  of  socially  necessary  labour. 

Although  Karl  Marx  adopted  and  formulated  in  his 
own  terms  the  theory  that  value  is  determined  by  labour, 
he  did  not  thence  deduce  the  conclusion  that  labour  has  a 
right  to  the  whole  product.^  Being  a  materialist,  he  con- 
sistently rejected  conceptions  of  abstract  justice  or  injus- 
tice, rights  or  wrongs.  In  opposition  to  the  methods  of 
his  predecessors,  he  endeavoured  to  discover  the  historical 
and  positive  forces  which  determined  the  actual  distribu- 
tion, and  to  derive  therefrom  the  laws  that  were  neces- 
sarily preparing  the  way  for  a  new  social  order.  While 
he  contended  that  rent  receivers  and  interest  receivers  ap- 
propriated the  surplus  value  created  by  labour,  he  refrained 
from  stigmatising  this  process  as  morally  wrong.  It  was 
merely  a  necessary  element  of  the  capitalist  system.  To 
call  it  unjust  was  in  Marx'  view  to  use  language  without 
meaning.  As  well  might  one  speak  of  the  injustice  of  a 
hurricane  or  an  avalanche.  Not  the  preaching  of  abstract 
justice,  but  the  inevitable  transformation  of  the  capitalist 
into  the  collectivist  organisation  of  industry,  would  enable 
labour  to  obtain  its  full  product. 

Nevertheless,  it  is  probably  true  that  a  majority  of  the 
followers  of  Marx  have  drawn  from  his  labour  theory  of 
value  the  inference  that  all  the  value  of  the  product  be- 
longs by  a  moral  right  to  the  labourer.  So  deeply  fixed 
in  the  human  conscience  is  the  conception  of  justice,  and 
1 "  Das  Kapital,"  1867. 


344  DISTRIBUTIVE   JUSTICE 

SO  general  is  the  conviction  of  the  labourer's  right  to  his 
product,  that  most  Socialists  have  not  been  able  to  main- 
tain a  position  of  consistent  economic  materialism. 
Indeed,  Marx  himself  did  not  always  succeed  in  evading 
the  influence  and  the  terminology  of  idealistic  conceptions. 
He  frequently  thought  and  spoke  of  the  Socialist  regime 
as  not  only  inevitable  but  as  morally  right,  and  of  the 
capitalist  system  as  morally  wrong.  Despite  his  rigid, 
materialistic  theorising,  his  writings  abound  in  passionate 
denunciation  of  existing  industrial  evils,  and  in  many  sorts 
of  "  unscientific  "  ethical  judgments.^ 

In  so  far  as  the  right  to  the  whole  product  of  labour 
has  been  based  upon  the  labour  theory  of  value,  it  may  be 
summarily  dismissed  from  consideration.  The  value  of 
products  is  neither  created  nor  adequately  measured  by 
labour;  it  is  determined  by  utility  and  scarcity.  Labour 
does,  indeed,  affect  value,  inasmuch  as  it  increases  utility 
and  diminishes  scarcity,  but  it  is  not  the  only  factor  that 
influences  these  categories.  Natural  resources,  the  desires 
and  the  purchasing  power  of  consumers  determine  value 
quite  as  fundamentally  as  does  labour,  and  cause  it  to  vary 
out  of  proportion  to  the  labour  expended  upon  a  com- 
modity. 

To-day  there  are  probably  not  many  adherents  of  the 
right-to-the-whole-product  doctrine  who  attempt  to  base  it 
upon  any  theory  of  value.  The  majority  appeal  to  the 
simple  and  obvious  fact  that  the  labourers,  together  with 
the  active  directors  of  industry,  are  the  only  human  beings 
who  expend  energy  in  the  productive  process.  The  only 
labour  that  the  capitalist  and  the  landowner  perform  in 
return  for  the  interest  and  rent  that  they  respectively  re- 
ceive, consists  in  choosing  the  particular  goods  in  which 
their  money  is  to  be  invested.  As  capitalist  and  land- 
owner, they  do  not  participate  in  the  turning  out  of  prod- 
ucts.    They  are  owners  but  not  operators  of  the  factors 

1  Cf .  Polier,  op.  cit.,  pp.  352,  sq. 


SOME   UNACCEPTABLE   THEORIES   OF   WAGE-JUSTICE       345 

of  production.  In  the  sense,  therefore,  of  active  agents 
the  labourers  and  the  business  men  are  the  only  producers. 
Whether  land  and  capital  should  be  called  productive, 
whether  the  product  should  be  regarded  as  produced  by 
land  and  capital  as  well  as  by  labour  and  undertaking 
activity,  is  mostly  a  matter  of  terminology.  Inasmuch  as 
they  are  instrumental  in  bringing  forth  the  product,  land 
and  capital  may  properly  be  designated  as  productive,  but 
not  in  the  same  sense  as  labour  and  business  energy.  The 
former  are  passive  factors  and  instrumental  causes  of  the 
product,  while  the  latter  are  active  factors  and  original 
causes.  Moreover,  the  former  are  non-rational  entities, 
while  the  latter  are  attributes  of  human  beings. 

As  we  have  seen  in  former  chapters,  it  is  impossible  to 
prove  that  mere  ownership  of  a  productive  thing,  such  as 
a  cow,  a  piece  of  land,  or  a  machine,  necessarily  creates  a 
right  to  either  the  concrete  or  the  conventional  product. 
The  formula,  "res  fructiUcat  domino,"  is  not  a  self  evi- 
dent proposition.  Nor  are  there  any  premises  available 
from  which  the  formula  can  be  logically  and  necessarily 
deduced.  On  the  other  hand,  we  cannot  prove  conclu- 
sively that  ownership  of  productive  property  does  not  give 
a  right  to  the  product.  Whence  it  follows  that  the  owners 
of  land  and  capital  have  at  least  a  presumptive  claim  to 
take  rent  and  interest  from  their  possessions.  Moreover, 
those  owners  of  capital  who  would  not  have  saved  money 
without  the  hope  of  interest  have  a  just  claim  thereto  on 
account  of  their  sacrifices  in  saving. 

Would  the  State  be  justified  in  abolishing  rent  and  in- 
terest, and  thus  enabling  labour  to  obtain  the  whole  prod- 
uct? Conceivably  this  result  might  be  brought  about 
under  the  present  system  of  private  ownership,  or  through 
the  substitution  of  collectivism.  Were  the  change  made 
by  the  former  method  land  and  capital  would  no  longer 
be  sought  or  have  value  on  account  of  their  annual  rev- 
enues, but  only  as  receptacles  of  saving.     They  would  be 


346  DISTRIBUTIVE   JUSTICE 

desired  solely  as  means  of  accumulating  stores  of  goods 
which  might  be  exchanged  for  articles  of  consumption 
some  time  in  the  future.  While  we  cannot  estimate  even 
approximately  the  decline  that  would  thus  occur  in  the 
value  of  land  and  capital,  we  may  safely  assert  that  it 
would  be  considerable.  Unless  the  proprietors  received 
adequate  compensation  for  this  loss,  they  would  be  com- 
pelled to  suffer  obvious  and  grave  injustice.  Any  attempt, 
however,  to  carry  out  such  a  scheme,  either  with  or  with- 
out compensation,  would  inevitably  fail.  Rent  might  be 
terminated  through  the  Single  Tax,  but  interest  could  not 
be  abolished  by  any  mere  legal  prohibition.  Nor  does 
Socialism  afford  a  way  out;  for,  as  we  have  seen  in  a 
former  chapter,  it  is  an  impracticable  system.  Conse- 
quently the  theory  of  the  right  to  the  whole  product  of 
labour  is  confronted  by  the  final  objection  that  its  realisa- 
tion would  involve  greater  evils  and  injustices  than  those 
which  it  seeks  to  abolish. 

Finally,  the  theory  is  radically  incomplete.  It  professes 
to  describe  the  requirements  of  justice  as  between  the  land- 
owners and  capitalists  on  the  one  side,  and  the  wage  earners 
on  the  other;  but  it  provides  no  rule  for  determining  dis- 
tributive justice  as  between  different  classes  of  labour.  In 
none  of  its  forms  does  it  provide  any  comprehensive  rule 
or  principle  to  ascertain  the  difference  between  the  products 
of  different  labourers,  and  to  decide  how  the  product  be- 
longing to  any  group  of  men  as  a  whole  should  be  divided 
among  the  individual  members.  Does  the  locomotive 
engineer  produce  more  than  the  section  hand,  the  book- 
keeper more  than  the  salesman,  the  ditch  digger  more  than 
the  teamster?  These  and  countless  similar  questions  are, 
from  the  nature  of  the  productive  process,  unanswerable. 
Even  if  it  were  ethically  acceptable,  the  doctrine  of  the 
right  to  the  whole  product  is  hopelessly  inadequate. 

As  intimated  above,  the  notion  that  if  the  labourer  rer 
ceives  compensation  according  to  his  product  he  receives 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       347 

just  compensation,  is  one  of  the  most  prevalent  and  funda- 
mental concepts  in  the  controversy  about  wage  justice. 
Hence  we  find  it  in  certain  theories  which  reject  the  doc- 
trine of  the  right  to  the  whole  product.  According  to 
these  theories,  not  only  the  labourer  but  all  the  agents  of 
production  should  be  rewarded  in  proportion  to  their  pro- 
ductive contributions.  Instead  of  the  whole  product,  the 
worker  ought  to  receive  that  portion  of  it  which  corre- 
sponds to  his  specific  productivity,  that  is,  that  portion  of 
the  product  which  represents  his  productive  influence  as 
compared  with  the  productive  efficacy  of  land,  capital,  and 
business  energy. 

Clark's  Theory  of  Specific  Productivity 
One  of  the  theories  referred  to  in  the  last  paragraph  is 
that  which  has  been  elaborated  in  great  detail  and  with 
great  ingenuity  by  Professor  John  Bates  Clark.  As  stated 
by  himself  in  the  opening  sentence  of  the  preface  to  his 
"  Distribution  of  Wealth,"  its  main  tenet  is,  "  that  the 
distribution  of  the  income  of  society  is  controlled  by  a 
natural  law,  and  that  this  law,  if  it  worked  without  fric- 
tion, would  give  to  every  agent  of  production  the  amount 
of  wealth  which  that  agent  creates."  In  a  regime  of  per- 
fect competition,  therefore,  the  labourer  would  get,  not  the 
whole  product  of  industry,  but  the  whole  product  due  to 
his  own  exertions. 

It  is  impossible,  and  indeed  unnecessary,  to  enter  upon 
an  extended  examination  of  this  contention.  It  will  be 
sufficient  to  state  in  a  summary  way  the  most  obvious  and 
cogent  objections.  Without  making  any  examination  of 
Professor  Clark's  theory,  we  should  expect  to  find  it  un- 
convincing. For  the  productive  process  is  by  analogy  an 
organic  process,  in  which  every  factor  requires  the  co- 
operation of  every  other  factor  in  order  to  turn  out  even 
the  smallest  portion  of  the  product.  Each  factor  is  in  its 
own  order  the  cause  of  the  whole  product.     Consequently 


34^  DISTRIBUTIVE   JUSTICE 

no  physical  portion  of  the  product  can  be  set  aside  and 
designated  as  wholly  due  to  any  one  factor.  Can  we  not, 
however,  distinguish  the  proportionate  productive  infltience 
exerted  by  each  factor,  and  the  proportion  of  the  product 
which  represents  such  productive  influence?  This  is  the 
question  to  which  Professor  Clark  addresses  himself  with 
much  ingenuity,  subtlety,  and  labour,  and  to  which  he 
returns  an  affirmative  answer.^ 

He  contends  that  the  amount  of  product  added  by  the 
presence  of  the  least  productive  labourer  in  a  group  or 
establishment  describes  the  productivity  of  that  and  every 
other  labourer  for  whom  the  man  in  question  can  be  sub- 
stituted. Nevertheless  this  marginal  labourer  had  the  use 
of  some  capital,  no  matter  how  little  or  how  poor;  conse- 
quently the  increment  of  product  which  follows  his  activity 
is  partly  due  to  capital.  It  represents  something  other 
than  his  own  productive  power.  If  his  wage  equals  the 
value  of  this  increment  of  product,  he  is  receiving  some- 
thing more  than  his  specific  product. 

In  the  second  place,  Professor  Clark  maintains  that  the 
difference  between  what  a  labourer  produces  when  he  uses 
the  whole  of  a  certain  supply  of  capital  and  what  he  pro- 
duces when  he  has  shared  that  capital  with  another 
labourer,  represents  the  specific  productivity  of  the  relin- 
quished capital.  Let  us  assume  that  in  a  given  case  the 
difference  is  ten  units  of  product.  When  the  first  man 
had  the  whole  capital  to  himself,  the  product  was  one  hun- 
dred units;  when  he  shares  the  use  of  it  with  another,  the 
total  product  is  one  hundred  and  eighty  units.  As  the  two 
men  are  assumed  to  be  equally  productive,  each  has  to  his 
credit  ninety  units  of  product.  Working  with  half  the 
capital,  the  first  man  finds  that  the  resulting  product  is  ten 
units  less  than  when  he  was  using  the  whole  capital. 
Hence  these  ten  units  represent  the  portion  that  the  relin- 
quished capital  contributed  to  the  product;  and  if  the 
1  Cf .  especially  chap,  xxi,  "  The  Theory  of  Economic  Causation," 


SOME   UNACCEPTABLE  THEORIES  OF   WAGE-JUSTICE       349 

productivity  of  half  the  capital  is  ten  units,  that  of  the 
whole  capital  must  be  twenty  units.  Nevertheless,  the  ten 
units  by  which  the  product  was  enlarged  when  the  man 
had  the  whole  capital,  did  not  come  into  being  without  his 
co-operation;  hence  they  cannot  be  entirely  attributed  to 
the  one-half  share  of  the  capital.  In  other  words,  the 
productivity  of  the  relinquished  capital  seems  to  be  less 
than  ten  units.  It  also  seems  to  be  more  than  ten  units; 
for  we  may  assume  that  if  each  man  were  to  use  one-half 
the  capital  independently  of  the  other,  the  resulting  total 
product  would  be  less  than  one  hundred  and  eighty  units, 
or  less  than  ninety  units  for  each.  Consequently  the  dif- 
ference between  the  product  resulting  from  the  first  man's 
use  of  the  whole  capital  and  that  resulting  from  his  use  of 
half  the  capital  would  be  more  than  ten  units;  and  this 
difference  is  specifically  attributable  to  half  the  capital. 
Who  can  say  which  of  these  calculations  is  correct,  or 
whether  either  of  them  is  correct? 

The  method  of  ascertaining  specific  productivity  which 
has  been  described  in  the  last  paragraph  is  thought  by 
Professor  Clark  to  receive  confirmation  from  the  fact  that 
it  leads  to  the  same  conclusion  as  the  first  and  more  direct 
method ;  namely,  that  the  specific  productivity  of  labour  is 
expressed  in  the  product  of  the  marginal  labourer.  As  a 
matter  of  fact,  this  conclusion  is  yielded  by  both  methods; 
for  the  specific  productivity  of  the  first  labourer  appeared 
as  eighty  units,  which  was  also, the  specific  productivity  of 
the  second  labourer,  wh6  was  the  marginal  labourer.  As 
we  saw  in  the  second  last  paragraph,  however,  the  mar- 
ginal product  is  not  due  to  labour  alone ;  hence  the  verifica- 
tion provided  by  the  second  method  is  in  reality  a  refu- 
tation. 

Apparently  the  majority  of  economists  do  not  accept 
Professor  Clark's  theory;  for  of  the  nine  who  discussed 
certain  applications  of  it  at  the  nineteenth  annual  meetmg 
of  the  American  Economic  Association  only  one  approved 


350  DISTRIBUTIVE    JUSTICE 

it,   three  were  non-committal,   and  five   expressed  their 
dissent.^ 

Even  if  the  theory  were  true  its  hypothetical  character 
would  deprive  it  of  any  practical  value.  It  assumes  a 
regime  of  perfect  competition,  but  this  assumption  is  so 
seldom  realised  that  no  rule  based  upon  it  can  throw  much 
light  on  the  question  of  the  productivity  of  present  day 
labourers. 

Even  if  it  were  exactly  applicable  to  existing  conditions, 
that  is,  if  labourers  were  actually  getting  their  specific 
products,  the  theory  would  not  provide  us  with  a  doctrine 
of  just  wages.  As  we  have  seen  in  former  chapters,  pro- 
ductivity is  neither  the  only  nor  the  highest  canon  of  jus- 
tice, whether  as  regards  the  comparative  claims  of  capital 
and  labour,  or  as  regards  the  claims  of  different  labourers. 
The  contention  that  capital  ought  to  command  interest  be- 
cause it  aids  in  bringing  forth  the  product,  is  neither  self 
evident  nor  demonstrable  by  any  process  of  reasoning. 
Even  if  we  should  concede  that  the  capitalist  has  a  right  to 
interest  by  virtue  of  the  productivity  of  his  capital,  we 
should  not  therefore  conclude  that  this  right  is  as  cogent 
as  the  corresponding  right  of  the  labourer.  In  the  former 
case  the  productive  agency  is  not  human  nor  active,  but 
only  material  and  passive;  and  the  recipient  of  the  product 
performs  no  labour  as  capitalist,  but  is  left  free  to  get  a 
livelihood  by  personal  activity.  The  productivity  of 
labour  differs  in  all  these  respects,  and  the  difference  is 
ethically  sufficient  to  justify  the  claim  that  the  labourer 
may  sometimes  have  a  right  to  a  part  of  the  specific  product 
of  capital.  To  sum  up  the  matter  in  the  words  of  Pro- 
fessor Wicker :  "  To  have  proved  that  the  capitalist  gets 
in  interest  what  his  capital  produces  is  not  to  have  proved 
that  the  capitalist  gets  what  he  has  earned.  To  have 
proved  that  the  landlord  gets  what  his  land  produces  is 
not  to  have  proved  that  the  landlord  earns  his  distributive 
1 "  Proceedings,"  pp.  23-54. 


SOME   UNACCEPTABLE   THEORIES   OF   WAGE-JUSTICE       35 1 

share.  .  .  .  Economics  is  not  ethics;  explanation  is  not 
justification."  ^ 

Indeed,  Professor  Clark  nowhere  explicitly  asserts  that 
productivity  is  an  adequate  rule  of  justice.  "  We  might 
raise  the  question,"  he  says,  "  whether  a  rule  that  gives 
to  a  man  his  product  is  in  the  highest  sense  just."  ^  Scat- 
tered throughout  his  volume,  however,  are  many  expres- 
sions which  might  fairly  be  interpreted  as  answering  this 
question  in  the  affirmative.  The  statements  that  distribu- 
tion according  to  product  is  a  "  natural  law,"  and  that  if 
the  labourer  does  not  get  his  full  specific  product  he  is 
"  despoiled,"  suggest  if  they  do  not  imply  that  wages 
according  to  productivity  is  not  merely  the  economic  but 
the  ethical  norm.  At  any  rate,  the  assumption  of  pro- 
ductivity as  the  adequate  canon  of  wage  justice,  is  very 
widely  adopted,  and  is  frequently  brought  forward  to  give 
sanction  to  insufficient  rates  of  remuneration.  Hence  it 
has  been  thought  well  to  show  that  the  economic  basis  of 
the  assumption,  i.e.,  that  the  labourer  gets  what  he  pro- 
duces, is  unproved  and  unprovable. 

Carver's  Modified  Version  of  Productivity 

Professor  Carver  makes  no  attempt  to  ascertain  or  state 
the  exact  physical  productivity  of  labour  as  compared  with 
that  of  capital,  but  confines  his  attention  to  what  he  calls 
the  "  economic  "  productivity  of  a  given  unit  of  labour  in 
a  given  productive  process.^  "  Find  out  accurately  how 
much  the  community  produces  with  his  [the  labourer's] 
help,  over  and  above  what  it  produces  without  his  help, 
and  you  have  an  exact  measure  of  his  productivity."* 
By  this  rule  we  can  determine  a  man's  productivity  not 
only  as  compared  with  his  inactivity  in  relation  to  a  given 

1 "  Proceedings  of  the  22d  Annual  Meeting  of  the  American 
Economic  Association,"  pp.  160,  161. 

2  Op.  cit.,  p.  8.  

8  "Essays  in  Social  Justice";  especially  ch.  vii. 
*0p.  cit.,  pp.  187,  188. 


352  DISTRIBUTIVE   JUSTICE 

industry  or  establishment,  but  as  compared  with  the  pro- 
ductivity of  some  other  man  who  might  be  substituted  for 
him.  Thus  understood,  productivity  expresses  the  eco- 
nomic value  of  a  man  to  the  industrial  process  in  which  he 
participates.  It  "  determines  how  much  a  man  is  worth, 
and  consequently,  according  to  our  criterion  of  justice, 
how  much  a  man  ought  to  have  as  a  reward  for  his 
work."  1 

While  this  conception  of  productivity  is  relatively  simple, 
and  the  canon  of  justice  based  upon  it  is  somewhat  plau- 
sible, neither  is  adequate.  To  many  situations  the  produc- 
tivity test  is  substantially  inapplicable.  The  removal  from 
industry  of  the  man  who  works  alone ;  for  example,  the  in- 
dependent shoemaker,  blacksmith,  tailor,  or  farmer,  would 
result  not  in  a  certain  diminution,  but  in  the  entire  non- 
appearance of  the  product;  and  the  removal  of  the  capital 
or  tools  would  have  precisely  the  same  effect.  According 
to  the  former  method,  the  labourer  is  to  be  credited  with 
the  whole  product,  and  capital  with  nothing;  according  to 
the  latter  method,  capital  produces  everything,  and  labour 
nothing.  Even  when  several  labourers  are  employed  in  an 
establishment,  the  test  is  inapplicable  to  those  who  are  en- 
gaged upon  indispensable  tasks ;  for  example,  the  engineer 
in  the  boiler  room  of  a  small  factory,  and  the  bookkeeper 
in  a  small  store.  Remove  them,  and  you  have  no  product 
at  all;  hence  a  rigid  enforcement  of  Professor  Carver's 
test  would  award  them  the  whole  product.  To  be  sure, 
we  can  get  some  measure  of  the  productivity  of  these  men 
by  observing  the  effect  on  the  product  when  inferior  men 
are  put  in  their  places;  but  this  merely  enables  us  to  tell 
how  much  more  they  are  worth  than  other  men,  not  their 
total  worth.  Moreover,  even  the  substitution  test  is  not 
always  practicable.  The  attempt  to  ascertain  the  produc- 
tivity of  a  workman  of  high  technical  skill  by  putting  in 
his  place  an  utterly  unskilled  labourer,  would  not  yield 
1  Op.  cit,  p.  201. 


SOME   UNACCEPTABLE  THEORIES   OF   WAGE-JUSTICE       353 

very  satisfactory  results,  either  to  the  inquiry  or  to  the 
industry.  In  the  majority  of  such  cases,  the  difference  in 
the  resulting  product  would  probably  far  exceed  the  dif- 
ference in  the  existing  wage  rates  of  the  two  men,  thus 
showing  that  the  skilled  worker  is  getting  considerably  less 
than  he  is  "  economically  worth." 

In  the  field  to  which  it  is  applicable;  namely,  that  of 
more  or  less  unspecialised  labour  in  large  establishments, 
Professor  Carver's  theory  violates  some  of  the  most  funda- 
mental conceptions  of  justice  and  humanity.  He  admits 
that  it  takes  no  account  of  the  labourer's  efforts,  sacri- 
fices, or  needs,  and  that  when  unskilled  labour  becomes  too 
plentiful,  the  value  of  the  product  may  fall  below  the  cost 
of  supporting  a  decent  standard  of  living.  While  he  looks 
with  some  sympathy  upon  the  demand  for  a  minimum 
wage  of  two  dollars  per  day,  he  contends  that  unless  the 
labourer  really  earns  that  amount,  some  other  man  will  be 
paid  less  than  he  earns,  "  which  would  be  unjust."  To 
"  earn  "  two  dollars  a  day  means,  in  Professor  Carver's 
terminology,  to  add  that  much  value  to  the  product  of  the 
establishment  in  which  the  labourer  is  employed;  for  this 
is  the  measure  of  the  labourer's  productivity.  If  all  the 
men  who  are  now  getting  less  than  two  dollars  a  day  are 
receiving  the  full  value  of  their  product,  and  if  all  the 
other  workers  are  likewise  given  the  full  value  of  their 
product,  an  increase  in  the  remuneration  of  the  former  will 
mean  a  deduction  from  the  compensation  of  the  latter. 

These  conclusions  of  ethical  pessimism  are  extremely 
vulnerable.  As  we  have  shown  in  chapter  xvi,  efforts, 
sacrifices,  and  needs  are  superior  to  productivity  as  claims 
to  reward,  and  must  be  given  due  consideration  in  any 
just  scheme  of  distribution.  Professor  Carver  would 
leave  them  out  of  account  entirely.  In  the  second  place,  it 
is  not  always  nor  necessarily  ever  true  that  to  raise  the 
wages  of  the  poorest  paid  labourers  will  mean  to  lower  the 
remuneration  of  those  who  are  better  paid.     Many  work- 


354  DISTRIBUTIVE    JUSTICE 

ers,  particularly  women,  are  now  receiving  less  than  the 
measure  of  their  "  productivity,"  less  than  they  "  earn," 
less  than  their  worth  to  the  employer,  less  than  he  would 
be  willing  to  pay  rather  than  go  without  their  services. 
Professor  Carver  would,  of  course,  not  deny  that  the 
wages  of  all  such  labourers  could  be  raised  without  affect- 
ing the  remuneration  of  other  workers.  Even  when  the 
poorest  paid  class  is  receiving  all  that  its  members  are  at 
present  worth  to  the  employer,  an  increase  in  their  com- 
pensation would  not  necessarily  come  out  of  the  fund 
available  for  the  better  paid.  It  could  be  deducted  from 
excessive  profits  and  interest;  for  we  know  well  that  in 
many  industries  competition  does  not  automatically  keep 
down  these  shares  to  the  minimum  necessary  to  retain  the 
services  of  business  ability  and  capital.  It  could  be  pro- 
vided to  some  extent  out  of  the  enlarged  product  that 
would  result  from  improvements  in  the  productive  process, 
and  from  the  increased  efficiency  of  those  workers  whose 
wages  had  been  raised.  Finally,  the  increased  remunera- 
tion could  be  derived  from  increased  prices.  When  we 
speak  of  the  unskilled  labourer  as  getting  all  that  he  pro- 
duces, or  all  that  he  earns,  we  refer  not  to  his  concrete 
product,  but  to  the  value  of  that  product,  to  the  selling 
price  of  the  product.  Neither  this  price,  nor  any  other 
existing  price,  has  anything  about  it  that  is  either  eco- 
nomically or  ethically  sacred.  In  a  competitive  market 
current  prices  are  fixed  by  the  forces  of  supply  and  de- 
mand, which  often  involve  the  exploitation  of  the  weak; 
in  a  monopoly  market  they  are  set  by  the  desires  of  the 
monopolist,  which  are  likewise  destitute  of  moral  validity. 
Hence  a  minimum  wage  law  which  would  raise  the  price 
and  value  of  the  product  sufficiently  to  provide  living 
wages  for  the  unskilled  workers,  thus  increasing  their 
"productivity"  and  enabling  them  to  "earn"  the  legal 
wage,  would  neither  violate  the  principles  of  justice,  nor 
necessarily  diminish  the  compensation  of  any  other  labour- 


SOME  UNACCEPTABLE  THEORIES  OF  WAGE-JUSTICE       355 

ing  group.  To  be  sure,  the  increased  prices  might  be  fol- 
lowed by  such  a  lessening  of  demand  for  the  product  as  to 
diminish  employment ;  but  this  is  another  matter  which  has 
no  direct  bearing  on  either  the  economic  or  the  ethical 
phases  of  productivity  and  earning  power.  And  the  dis- 
advantages involved  in  the  supposition  of  a  reduced  vol- 
ume of  employment  may  possibly  be  not  so  formidable 
socially  as  those  which  accompany  a  large  volume  of  in- 
sufficiently paid  occupations.  This  question  will  receive 
further  consideration  in  a  later  chapter. 

In  the  meantime,  we  conclude  that  Professor  Carver's 
theory  or  rule  is  inapplicable  to  a  large  part  of  the  indus- 
trial field,  and  that  where  it  does  apply  it  frequently  runs 
counter  to  some  of  the  fundamental  principles  of  distribu- 
tive justice. 


CHAPTER  XXIII 

THE   MINIMUM    OF   JUSTICE:   A   LIVING   WAGE 

Although  the  principle  of  needs  is  somewhat  promi- 
nent among  the  theories  of  wage  justice,  it  received  only- 
incidental  mention  in  the  last  chapter.  Considered  as  a 
comprehensive  rule,  this  principle  has  been  defended  with 
less  energy  and  definiteness  than  most  of  the  other  canons. 
Considered  as  a  partial  rule,  it  is  sound  and  fundamental, 
and  therefore  could  not  have  been  classed  among  theories 
that  are  unacceptable. 

The  Principle  of  Needs 

Many  of  the  early  French  Socialists  of  the  Utopian 
school  advanced  this  formula  of  distribution :  "  From 
each  according  to  his  powers;  to  each  according  to  his 
needs."  It  was  also  put  forward  by  the  German  Social- 
ists in  the  Gotha  Program  in  1875.  While  they  have  not 
given  to  this  standard  formal  recognition  in  their  more  re- 
cent platforms,  Socialists  generally  regard  it  as  the  ideal 
rule  for  the  distant  future.^  The  difficulties  confronting 
it  are  so  great  and  so  obvious  that  they  would  defer  the 
introduction  of  it  to  a  time  when  the  operation  of  their 
system  will,  they  hope,  have  eradicated  the  historical 
human  qualities  of  laziness  and  selfishness.  To  adopt 
needs  as  the  sole  rule  of  distribution  would  mean,  of 
course,  that  each  person  should  be  rewarded  in  proportion 
to  his  wants  and  desires,  regardless  of  his  efforts  or  of  the 
amount  that  he  had  produced.     The  mere  statement  of 

1  Cf .   Skelton,  "  Socialism :   A  Critical  Analysis,"  p.  202 ;  Menger, 
"  The  Right  to  the  Whole  Produce  of  Labour,"  pp.  8,  sq. 

356 


THE    MINIMUM    OF   JUSTICE;      A   LIVING    WAGE       357 

the  proposal  is  sufficient  to  refute  it  as  regards  the  men  and 
women  of  whom  we  have  any  knowledge.  In  addition  to 
this  objection,  there  is  the  insuperable  difficulty  of  measur- 
ing fairly  or  accurately  the  relative  needs  of  any  group 
composed  of  men,  women,  and  children.  Were  the  mem- 
bers' own  estimates  of  their  needs  accepted  by  the  dis- 
tributing authority,  the  social  product  would  no  doubt  fall 
far  short  of  supplying  all.  If  the  measurement  were 
made  by  some  official  person  or  persons,  "  the  prospect  of 
jobbery  and  tyranny  opened  up  must  give  the  most  fanat- 
ical pause."  Indeed,  the  standard  of  needs  should  be  re- 
garded as  a  canon  of  Communism  rather  than  of  Social- 
ism; for  it  implies  a  large  measure  of  common  life  as  well 
as  of  common  ownership,  and  paternalistic  supervision  of 
consumption  as  well  as  collectivist  management  of  pro- 
duction. 

While  the  formula  of  needs  must  be  flatly  rejected  as 
complete  rule  of  distributive  justice,  or  of  wage  justice,  it 
is  valid  and  indispensable  as  a  partial  standard.  It  is  a 
partial  measure  of  justice  in  two  senses :  first,  inasmuch  as 
it  is  consistent  with  the  admission  and  operation  of  other 
principles,  such  as  productivity  and  sacrifice;  second,  in- 
asmuch as  it  can  be  restricted  to  certain  fundamental  requi- 
sites of  life,  instead  of  being  applied  to  all  possible  human 
needs.  It  can  be  made  to  safeguard  the  minirnum  de- 
mands of  reasonable  life,  and  therefore  to  function  as  a 
minimum  standard  of  wage  justice. 

Human  needs  constitute  the  primary  title  or  claim  to 
material  goods.  None  of  the  other  recognised  titles,  such 
as  productivity,  effort,  sacrifice,  purchase,  gift,  inherit- 
ance, or  first  occupancy,  is  a  fundamental  reason  or  justi- 
fication of  either  rewards  or  possessions.  They  all  as- 
sume the  existence  of  needs  as  a  prerequisite  to  their  valid- 
ity. If  men  did  not  need  goods  they  could  not  reasonably 
lay  claim  to  them  by  any  of  the  specific  titles  just  enumer- 
ated.    First  comes  the  general  claim  or  fact  of  needs ;  then 


358  DISTRIBUTIVE   JUSTICE 

the  particular  title  or  method  by  which  the  needs  may  be 
conveniently  supplied.  While  these  statements  may  seem 
elementary  and  platitudinous,  their  practical  value  v^ill  be 
quite  evident  when  we  come  to  consider  the  conflicting 
claims  that  sometimes  arise  out  of  the  clash  between  needs 
and  some  of  the  other  titles.  We  shall  see  that  needs  are 
not  merely  a  physical  reason  or  impulse  toward  acquisi- 
tion and  possession,  but  a  moral  title  which  rationalises 
the  claim  to  a  certain  amount  of  goods.^ 

Three  Fundamental  Principles 

The  validity  of  needs  as  a  partial  rule  of  wage  justice 
rests  ultimately  upon  three  fundamental  principles  regard- 
ing man's  position  in  the  universe.  The  first  is  that  God 
created  the  earth  for  the  sustenance  of  all  His  children; 
therefore,  that  all  persons  are  equal  in  their  inherent  claims 
upon  the  bounty  of  nature.  As  it  is  impossible  to  demon- 
strate that  any  class  of  persons  is  less  important  than  an- 
other in  the  eyes  of  God,  it  is  logically  impossible  for  any 
believer  in  Divine  Providence  to  reject  this  proposition. 
The  man  who  denies  God  or  Providence  can  refuse  assent 
to  the  second  part  of  the  proposition  only  by  refusing  to 
acknowledge  the  personal  dignity  of  the  human  individual, 
and  the  equal  dignity  of  all  persons.  Inasmuch  as  the 
human  person  is  intrinsically  sacred  and  morally  inde- 
pendent, he  is  endowed  with  those  inherent  prerogatives, 
immunities,  and  claims  that  we  call  rights.  Every  person 
is  an  end  in  himself;  none  is  a  mere  instrument  to  the 
convenience  or  welfare  of  any  other  human  being.  The 
worth  of  a  person  is  something  intrinsic,  derived  from 
within,  not  determined  or  measurable  by  reference  to  any 
earthly  object  or  purpose  without.  In  this  respect  the 
human  being  differs  infinitely  from,  is  infinitely  superior 

1  All  the  questions  treated  in  this  chapter  are  discussed  at  much 
greater  length  in  the  author's  work,  "  A  Living  Wage  " ;  Macmillan ; 
1906. 


THE   MINIMUM    OF   JUSTICE:      A   LIVING   WAGE       359 

to,  a  Stone,  a  rose,  or  a  horse.  While  these  statements 
help  to  illustrate  what  is  meant  by  the  dignity  of  person- 
ality, by  the  intrinsic  worth,  importance,  sacredness  of  the 
human  being,  they  do  not  prove  the  existence  of  this  in- 
herent juridical  quality.  Proof  in  the  strict  sense  is  irrele- 
vant and  impossible.  If  the  intrinsic  and  equal  moral 
worth  of  all  persons  be  not  self  evident  to  a  man,  it  will 
not  approve  itself  to  him  through  any  process  of  argumen- 
tation. Whosoever  denies  it  can  also  logically  deny  men's 
equal  claims  of  access  to  the  bounty  of  the  earth;  but  he 
cannot  escape  the  alternative  conclusion  that  brute  force, 
exercised  either  by  the  State  or  by  individuals,  is  the  only 
proper  determinant  of  possessions  and  of  property. 
Against  this  monstrous  contention  it  is  not  worth  while  to 
offer  a  formal  argument. 

The  second  fundamental  principle  is  that  the  inherent 
right  of  access  to  the  earth  is  conditioned  upon,  and  be- 
comes actually  valid  through,  the  expenditure  of  useful 
labour.  Generally  speaking  the  fruits  and  potentialities 
of  the  earth  do  not  become  available  to  men  without  pre- 
vious exertion.  "  In  the  sweat  of  thy  brow  thou  shalt  eat 
thy  bread,"  is  a  physical  no  less  than  a  moral  command- 
ment. There  are,  indeed,  exceptions :  the  very  young,  the 
infirm,  and  the  possessors  of  a  sufficient  amount  of  prop- 
erty. The  two  former  classes  have  claims  to  a  livelihood 
through  piety  and  charity,  while  the  third  group  has  at 
least  a  presumptive  claim  of  justice  to  rent  and  interest, 
and  a  certain  claim  of  justice  to  the  money  value  of  their 
goods.  Nevertheless,  the  general  condition  is  that  men 
must  work  in  order  to  live.  "  If  a  man  will  not  work 
neither  shall  he  eat."  For  those  who  refuse  to  comply 
with  this  condition  the  inherent  right  of  access  to  the 
earth  remains  only  hypothetical  and  suspended. 

The  two  foregoing  principles  involve  as  a  corollary  a 
third  principle;  the  men  who  are  in  present  control  of 
the   opportunities    of    the   earth   are   obliged    to    permit 


360  DISTRIBUTIVE   JUSTICE 

reasonable  access  to  these  opportunities  by  persons  who 
are  willing  to  work.  In  other  words,  possessors  must 
so  administer  the  common  bounty  of  nature  that  non- 
owners  will  not  find  it  unreasonably  difficult  to  get 
a  livelihood.  To  put  it  still  in  other  terms,  the  right 
to  subsist  from  the  earth  implies  the  right  to  access 
thereto  on  reasonable  terms.  When  any  man  who  is 
willing  to  work  is  denied  the  exercise  of  this  right,  he  is 
no  longer  treated  as  the  moral  and  juridical  equal  of  his 
fellows.  He  is  regarded  as  inherently  inferior  to  them, 
as  a  mere  instrument  to  their  convenience ;  and  those  who 
exclude  him  are  virtually  taking  the  position  that  their 
rights  to  the  common  gifts  of  the  Creator  are  inherently 
superior  to  his  birthright.  Obviously  this  position  cannot 
be  defended  on  grounds  of  reason.  Possessors  are  no 
more  justified  in  excluding  a  man  from  reasonable  access 
to  the  goods  of  the  earth  than  they  would  be  in  depriving 
him  of  the  liberty  to  move  from  place  to  place.  The  com- 
munity that  should  arbitrarily  shut  a  man  up  in  prison 
would  not  violate  his  rights  more  fundamentally  than  the 
community  or  the  proprietors  who  should  shut  him  out 
from  the  opportunity  of  getting  a  livelihood  from  the 
bounty  of  the  earth.  In  both  cases  the  man  demands  and 
has  a  right  to  a  common  gift  of  God.  His  moral  claim  is 
as  valid  to  the  one  good  as  to  the  other,  and  it  is  as  valid 
to  both  goods  as  is  the  claim  of  any  of  his  fellows. 

The  Right  to  a  Decent  Livelihood 

Every  man  who  is  willing  to  work  has,  therefore,  an 
inborn  right  to  sustenance  from  the  earth  on  reasonable 
terms  or  conditions.  This  cannot  mean  that  all  persons 
have  a  right  to  equal  amounts  of  sustenance  or  income; 
for  we  have  seen  on  a  preceding  page  that  men's  needs, 
the  primary  title  to  property,  are  not  equal,  and  that  other 
canons  and  factors  of  distribution  have  to  be  allowed  some 
weight  in  determining  the  division  of  goods  and  opportu- 


THE    MINIMUM    OF   JUSTICE:      A    LIVING   WAGE       361 

nities.  Nevertheless,  there  is  a  certain  minimum  of  goods 
to  which  every  worker  is  entitled  by  reason  of  his  inherent 
right  of  access  to  the  earth.  He  has  a  right  to  at  least  a 
decent  livelihood.  That  is ;  he  has  a  right  to  so  much  of 
the  requisites  of  sustenance  as  will  enable  him  to  live  in  a 
manner  worthy  of  a  human  being.  The  elements  of  a 
deceiit  livelihood  may  be  summarily  described  as:  food, 
clothing,  and  housing  sufficient  in  quantity  and  quality  to 
maintain  the  worker  in  normal  health,  in  elementary  com- 
fort, and  in  an  environment  suitable  to  the  protection  of 
morality  and  religion;  sufficient  provision  for  the  future 
to  bring  elementary  contentment,  and  security  against 
sickness,  accident,  and  invalidity;  and  sufficient  opportu- 
nities of  recreation,  social  intercourse,  education,  and 
church-membership  to  conserve  health  and  strength,  and 
to  render  possible  in  some  degree  the  exercise  of  the 
higher  faculties. 

On  what  ground  is  it  contended  that  a  worker  has  a 
right  to  a  decent  livelihood,  as  thus  defined,  rather  than  to 
a  bare  subsistence?  On  the  same  ground  that  validates 
his  right  to  life,  marriage,  or  any  of  the  other  fundamental 
goods  of  human  existence.  On  the  dignity  of  person- 
ality. Why  is  it  wrong  and  unjust  to  kill  or  maim  an 
innocent  man?  Because  human  life  and  the  human  per- 
son possess  intrinsic  worth;  because  personahty  is  sacred. 
But  the  intrinsic  worth  and  sacredness  of  personality  imply 
something  more  than  security  of  life  and  limb,  and  the 
material  means  of  bare  existence.  The  man  who  is  not 
provided  with  the  requisites  of  normal  health,  efficiency, 
and  contentment  lives  a  maimed  life,  not  a  reasonable  life. 
His  physical  condition  is  not  worthy  of  a  human  being. 
Furthermore,  man's  personal  dignity  demands  not  merely 
the  conditions  of  reasonable  physical  existence,  but  the 
opportunity  of  pursuing  self  perfection  through  the  har- 
monious development  of  all  his  faculties.  Unlike  the 
brutes,  he  is  endowed  with  a  rational  soul,  and  the  capacity 


362  DISTRIBUTIVE    JUSTICE 

of  indefinite  self  improvement.  A  due  regard  to  these 
endowments  requires  that  man  shall  have  the  opportunity 
of  becoming  not  only  physically  stronger,  but  intellectually 
wiser,  morally  better,  and  spiritually  nearer  to  God.  If 
he  is  deprived  of  these  opportunities  he  cannot  realise  the 
potentialities  of  his  nature  nor  attain  the  divinely  appointed 
end  of  his  nature.  He  remains  on  the  plane  of  the  lower 
animals.  His  personality  is  violated  quite  as  fundamen- 
tally as  when  his  body  is  injured  or  his  life  destroyed. 

While  it  is  impossible  to  define  with  mathematical  pre- 
cision the  degree  of  personal  development  that  is  necessary 
to  satisfy  the  claims  of  personal  dignity,  it  is  entirely  prac- 
ticable to  state  with  sufficient  definiteness  the  minimum 
conditions  of  such  development.  They  are  that  quantity 
of  goods  and  opportunities  which  fair-minded  men  would 
regard  as  indispensable  to  humane,  efficient,  and  reason- 
able life.  The  summary  description  of  a  decent  liveli- 
hood at  the  end  of  the  second  last  paragraph,  would  prob- 
ably be  accepted  by  all  men  who  really  believe  in  the  in- 
trinsic worth  of  personality. 

The  Claim  to  a  Decent  Livelihood  from  a  Present 

Occupation 

The  claim  of  a  worker  to  a  decent  livelihood  from  the 
goods  of  the  earth  does  not  always  imply  a  strict  right  to 
a  livelihood  from  one's  present  occupation.  To  demand 
this  would  in  some  circumstances  be  to  demand  a  livelihood 
not  on  reasonable  but  on-  unreasonable  terms ;  for  the  per- 
sons in  control  of  the  sources  could  not  reasonably  be  re- 
quired to  provide  a  decent  livelihood.  Their  failure  to  do 
so  would  not  constitute  an  unreasonable  hindrance  to  the 
worker's  access  to  the  earth  in  such  circumstances.  In 
chapter  xvi  we  saw  that  not  all  business  men  have  a 
strict  right  to  that  minimum  of  profits  which  is  required  to 
yield  them  a  decent  livelihood :  first,  because  the  direction 
of  industry  is  not  generally  the  business  man's  only  means 


THE    MINIMUM    OF   JUSTICE:      A   LIVING   WAGE       363 

of  getting  a  living;  second,  because  the  community,  the 
consumers,  do  not  regard  the  presence  and  activity  of  all 
existing  business  men  as  indispensable.  Of  course,  the 
community  is  morally  bound  to  pay  such  prices  for  goods 
as  will  enable  all  the  necessary  business  men,  whether  manu- 
facturers or  traders,  to  obtain  a  decent  livelihood  in  return 
for  their  directive  functions;  but  it  is  not  obhged  to  pro- 
vide a  livelihood  for  those  business  men  whose  presence  is 
not  required,  who  could  vanish  from  the  field  of  indus- 
trial direction  without  affecting  either  the  supply  or  the 
price  of  goods,  and  whose  superfluous  character  is  proved 
by  the  fact  that  they  cannot  make  a  livelihood  at  the  pre- 
vailing prices.  They  are  in  the  position  of  persons  whom 
the  community  does  not  desire  to  employ  as  business  men. 
In  refusing  to  pay  prices  sufficiently  high  to  provide  these 
inefficient  business  men  with  a  decent  livelihood,  the  com- 
munity is  not  unreasonably  hindering  their  access  to  the 
common  goods  of  the  earth.  Such  men  are  really  demand- 
ing a  livelihood  on  unreasonable  terms. 

The  Labourer's  Right  to  a  Living  Wage 

On  the  other  hand,  the  wage  earner's  claim  to  a  decent 
livelihood  is  valid,  generally  speaking,  in  his  present  occu- 
pation. In  other  words,  his  right  to  a  decent  livelihood  in 
the  abstract  means  in  the  concrete  a  right  to  a  living  wage. 
To  present  the  matter  in  its  simplest  terms,  let  us  consider 
first  the  adult  male  labourer  of  average  physical  and  mental 
ability  who  is  charged  with  the  support  of  no  one  but  him- 
self, and  let  us  assume  that  the  industrial  resources  are 
adequate  to  such  a  wage  for  all  the  members  of  his  class. 
Those  who  are  in  control  of  the  resources  of  the  comrnu- 
nity  are  morally  bound  to  give  such  a  labourer  a  living 
wage.  If  they  fail  to  do  so  they  are  unreasonably  hinder- 
ing his  access  to  a  livelihood  on  reasonable  terms ;  and  his 
right  to  a  livelihood  on  reasonable  terms  is  violated.  The 
central   consideration   here   is   evidently  the  reasonable- 


364  DISTRIBUTIVE   JUSTICE 

ness  of  the  process.  Unlike  the  business  man,  the  rent 
receiver,  and  the  interest  receiver,  the  labourer  has  ordi- 
narily no  other  means  of  livelihood  than  his  wages.  If 
these  do  not  furnish  him  with  a  decent  subsistence  he  is 
deprived  of  a  decent  subsistence.  When  he  has  performed 
an  average  day's  work,  he  has  done  all  that  is  within  his 
power  to  make  good  his  claim  to  a  decent  livelihood.  On 
the  other  hand,  the  community  is  the  beneficiary  of  his 
labour,  and  desires  his  services.  If,  indeed,  the  commu- 
nity would  rather  do  without  the  services  of  an  individual 
labourer  than  pay  him  a  living  wage,  it  is  morally  free  to 
choose  the  former  alternative,  precisely  as  it  is  justified  in 
refusing  to  pay  a  price  for  groceries  that  will  enable  an 
inefficient  grocer  to  obtain  living  profits.  Whatever  con- 
crete form  the  right  of  such  persons  to  a  decent  livelihood 
may  take,  it  is  not  the  right  to  living  wages  or  living 
profits  from  the  occupations  in  question.  Here,  however, 
we  are  discussing  the  labourer  to  whom  the  community 
would  rather  pay  a  living  wage  than  not  employ  him  at  all. 
To  refuse  such  a  one  a  living  wage  merely  because  he  can 
be  constrained  by  economic  pressure  to  work  for  less,  is  to 
treat  him  unreasonably,  is  to  deprive  him  of  access  to  a 
livelihood  on  reasonable  terms.  Such  treatment  regards 
the  labourer  as  inferior  to  his  fellows  in  personal  worth, 
as  a  mere  instrument  to  their  convenience.  It  is  an  un- 
reasonable distribution  of  the  goods  and  opportunities  of 
the  earth. 

Obviously  there  is  no  formula  by  which  such  conduct 
can  be  mathematically  demonstrated  as  unreasonable;  but 
the  proposition  is  as  certain  morally  as  any  other  proposi- 
tion that  is  susceptible  of  rational  defence  in  the  field  of 
distribution.  No  man  who  accepts  the  three  fundamental 
principles  stated  some  pages  back,  can  deny  the  right  of 
the  labourer  to  a  living  wage.  The  man  who  does  not 
accept  them  must  hold  that  all  property  rights  are  the  ar- 
bitrary creation  of  the  State,  or  that  there  is  no  such  thing 


THE    MINIMUM    OF   JUSTICE:      A    LIVING   WAGE       365 

as  a  moral  right  to  material  goods.  In  either  supposition 
the  distribution  and  possession  of  the  earth's  bounty  are 
subject  entirely  to  the  arbitrament  of  might.  There  is 
nothing  to  be  gained  by  a  formal  criticism  of  this  as- 
sumption. 

What  persons,  or  group,  or  authority  is  charged  with 
the  obligation  which  corresponds  to  the  right  to  a  living 
wage?  We  have  referred  to  "the  community"  in  this 
connection,  but  we  do  not  mean  the  community  in  its  cor- 
porate capacity,  i.e.,  the  State.  As  regards  private  em- 
ployments, the  State  is  not  obliged  to  pay  a  living  wage, 
nor  any  other  kind  of  wage,  since  it  has  not  assumed  the 
wage-paying  function  with  respect  to  these  labourers.  As 
protector  of  natural  rights,  and  as  the  fundamental  deter- 
miner of  industrial  institutions,  the  State  is  obliged  to 
enact  laws  which  will  enable  the  labourer  to  obtain  a  living 
wage;  but  the  duty  of  actually  providing  this  measure  of 
remuneration  rests  upon  that  class  which  has  assumed  the 
wage-paying  function.  This  is  the  employers.  In  our 
present  industrial  system,  the  employer  is  society's  pay- 
master. He,  not  the  State,  receives  the  product  out  of 
which  all  the  agents  of  production  must  be  rewarded. 
Where  the  labourer  is  engaged  in  rendering  personal  serv- 
ices to  his  employer,  the  latter  is  the  only  beneficiary  of 
the  labourer's  activity.  In  either  case  the  employer  is  the 
only  person  upon  whom  the  obligation  of  paying  a  living 
wage  can  primarily  fall. 

If  the  State  were  in  receipt  of  the  product  of  industry, 
the  wage-paying  fund,  it  would  naturally  be  charged  with 
the  obligation  that  now  rests  immediately  upon  the  em- 
ployer. If  any  other  class  in  the  community  were  the  own- 
ers of  the  product  that  class  would  be  imder  this  specific  ob- 
ligation. As  things  are,  the  employer  is  in  possession  of 
the  product,  and  discharges  the  function  of  wage  payer; 
consequently  he  is  the  person  who  is  required  to  perform 
this  function  in  a  reasonable  manner. 


366  DISTRIBUTIVE   JUSTICE 

When  the  Employer  Is  Unable  to  Pay  a  Living  Wage 

Evidently  the  employer  who  cannot  pay  a  living  wage  is 
not  obliged  to  do  so,  since  moral  duties  suppose  a  corre- 
sponding physical  capacity.  In  such  circumstances  the 
labourer's  right  to  a  living  wage  becomes  suspended  and 
hypothetical,  just  as  the  claim  of  a  creditor  when  the 
debtor  becomes  insolvent.  Let  us  see,  however,  precisely 
what  meaning  should  reasonably  be  given  to  the  phrase, 
"  inability  to  pay  a  living  wage." 

An  employer  is  not  obliged  to  pay  a  full  living  wage  to 
all  his  employes  so  long  as  that  action  would  deprive  him- 
self and  his  family  of  a  decent  livelihood.  As  active  di- 
rector of  a  business,  the  employer  has  quite  as  good  a  right 
as  the  labourer  to  a  decent  livelihood  from  the  product, 
and  in  case  of  conflict  between  the  two  rights,  the  employer 
may  take  advantage  of  that  principle  of  charity  which  per- 
mits a  man  to  prefer  himself  to  his  neighbour,  when  the 
choice  refers  to  goods  of  the  same  order  of  importance. 
Moreover,  the  employer  is  justified  in  taking  from  the 
product  sufficient  to  support  a  somewhat  higher  scale  of 
living  than  generally  prevails  among  his  employes ;  for  he 
has  become  accustomed  to  this  higher  standard,  and  would 
suffer  a  considerable  hardship  if  compelled  to  fall  notably 
below  it.  It  is  reasonable,  therefore,  that  he  should  have 
the  means  of  maintaining  himself  and  family  in  moderate 
conformity  with  their  customary  standard  of  living;  but 
it  is  unreasonable  that  they  should  indulge  in  anything  like 
luxurious  expenditure,  so  long  as  any  of  the  employes  fail 
to  receive  living  wages. 

Suppose  that  an  employer  cannot  pay  all  his  employes 
living  wages  and  at  the  same  time  provide  the  normal  rate 
of  interest  on  the  capital  in  the  business.  So  far  as  the 
borrowed  capital  is  concerned,  the  business  man  has  no 
choice;  he  must  pay  the  stipulated  rate  of  interest,  even 
though  it  prevents  him  from  giving  a  living  wage  to  all 


THE    MINIMUM    OF    JUSTICE:      A    LIVING   WAGE       367 

his  employes.  Nor  can  it  be  reasonably  contended  that 
the  loan  capitalist  in  that  case  is  obliged  to  forego  the  in- 
terest due  him.  He  cannot  be  certain  that  this  interest 
payment,  or  any  part  of  it,  is  really  necessary  to  make  up 
what  is  wanting  to  a  complete  scale  of  living  wages.  The 
employer  would  be  under  great  temptation  to  defraud  the 
loan  capitalist  on  the  pretext  of  doing  justice  to  the  la- 
bourer, or  to  conduct  his  business  inefficiently  at  the  ex- 
pense of  the  loan  capitalist.  Anyhow,  the  latter  is  under 
no  obligation  to  leave  his  money  in  a  concern  that  is  un- 
able to  pay  him  interest  regularly.  The  general  rule,  then, 
would  seem  to  be  that  the  loan  capitalist  is  not  obliged  to 
refrain  from  taking  interest  in  order  that  the  employes 
may  have  living  wages. 

Is  the  employer  justified  in  withholding  the  full  living 
wage  from  his  employes  to  provide  himself  with  the  normal 
rate  of  interest  on  the  capital  that  he  has  invested  in  the 
enterprise?  Speaking  generally,  he  is  not.  In  the  first 
place,  the  right  to  any  interest  at  all,  except  as  a  return 
for  genuine  sacrifices  in  saving,  is  not  certain  but  only  pre- 
sumptive.^ Consequently  it  has  no  such  firm  and  definite 
basis  as  the  right  to  a  living  wage.  In  the  second  place, 
the  right  to  interest,  be  it  ever  so  definite  and  certain,  is 
greatly  inferior  in  force  and  urgency.  It  is  an  axiom  of 
ethics  that  when  two  rights  conflict,  the  less  important 
must  give  way  to  the  more  important.  Since  all  property 
rights  are  but  means  to  the  satisfaction  of  human  needs, 
their  relative  importance  is  determined  by  the  relative  im- 
portance of  the  ends  that  they  serve;  that  is,  by  the  rela- 
tive importance  of  the  dependent  needs.  Now  the  needs 
that  are  supplied  through  interest  on  the  employer's  capi- 
tal are  slight  and  not  essential  to  his  welfare;  the  needs 
that  are  supplied  through  a  living  wage  are  essential  to  a 
reasonable  life  for  the  labourer.  On  the  assumption  that 
the  employer  has  already  taken  from  the  product  sufficient 
1  See  chapters  xii  and  xiii. 


368  DISTRIBUTIVE    JUSTICE 

to  provide  a  decent  livelihood,  interest  on  his  capital  will 
be  expended  for  luxuries  or  converted  into  new  invest- 
ments; a  living  wage  for  the  labourer  will  all  be  required 
for  the  fundamental  goods  of  life,  physical,  mental,  or 
moral.  Evidently,  then,  the  right  to  interest  is  inferior  to 
the  right  to  a  living  wage.  To  proceed  on  the  contrary 
theory  is  to  reverse  the  order  of  nature  and  reason,  and 
to  subordinate  essential  needs  and  welfare  to  unessential 
needs  and  welfare. 

Nor  can  it  be  maintained  that  the  capitalist-employer's 
claim  to  interest  is  a  claim  upon  the  product  prior  to  and 
independent  of  the  claim  of  the  labourer  to  a  living  wage. 
That  would  be  begging  the  question.  The  product  is  in  a 
fundamental  sense  the  common  property  of  employer  and 
employes.  Both  parties  have  co-operated  in  turning  it  out, 
and  they  have  equal  claims  upon  it,  in  so  far  as  it  is  neces- 
sary to  yield  them  a  decent  livelihood.  Having  taken 
therefrom  the  requisites  of  a  decent  livelihood  for  him- 
self, the  employer  who  appropriates  interest  at  the  expense 
of  a  decent  livelihood  for  his  employes,  in  effect  treats 
their  claims  upon  the  common  and  joint  product  as  essen- 
tially inferior  to  his  own.  If  this  assumption  were  cor- 
rect it  would  mean  that  the  primary  and  essential  needs 
of  the  employes  are  of  less  intrinsic  importance  than  the 
superficial  needs  of  the  employer,  and  that  the  employes 
themselves  are  a  lower  order  of  being  than  the  employer. 
The  incontestable  fact  is  that  such  an  employer  deprives 
the  labourers  of  access  to  the  goods  of  the  earth  on  reason- 
able terms,  and  gives  himself  an  access  thereto  that  is  un- 
reasonable. 

Suppose  that  all  employers  who  found  themselves  unable 
to  pay  full  living  wages  and  obtain  the  normal  rate  of 
interest,  should  dispose  of  their  businesses  and  become 
mere  loan  capitalists,  would  the  condition  of  the  underpaid 
workers  be  improved  ?  Two  effects  would  be  certain :  an 
increase  in  the  supply  of  loan  capital  relatively  to  the  de- 


THE    MINIMUM    OF   JUSTICE:      A   LIVING   WAGE       369 

mand,  and  a  decrease  in  the  number  of  active  business  men. 
The  first  would  probably  lead  to  a  decline  in  the  rate  of 
interest,  while  the  second  might  or  might  not  result  in  a 
diminution  of  the  volume  of  products.  If  the  rate  of  in- 
terest were  lowered  the  employing  business  men  would  be 
able  to  raise  wages;  if  the  prices  of  products  rose  a  fur- 
ther increase  of  wages  would  become  possible.  However, 
it  is  not  certain  that  prices  would  rise;  for  the  business 
men  who  remained  would  be  the  more  efficient  in  their 
respective  classes,  and  might  well  be  capable  of  producing 
all  the  goods  that  had  been  previously  supplied  by  their 
eliminated  competitors.  Owing  to  their  superior  effi- 
ciency and  their  larger  output,  the  existing  business  men 
would  be  able  to  pay  considerably  higher  wages  than  those 
who  had  disappeared  from  the  field  of  industrial  direction. 
As  things  are  to-day,  it  is  the  less  efficient  business  men 
who  are  unable  to  pay  living  wages  and  at  the  same  time 
obtain  the  prevailing  rate  of  interest  on  their  capital.  The 
ultimate  result,  therefore,  of  the  withdrawal  from  busi- 
ness of  those  who  could  not  pay  a  living  wage,  would 
probably  be  the  universal  establishment  of  a  living  wage. 
Of  course,  this  supposition  is  purely  fanciful.  Only  a 
small  minority  of  the  business  men  of  to-day  are  likely  to 
be  driven  by  their  consciences  either  to  pay  a  living  wage 
at  the  cost  of  interest  on  their  capital,  or  to  withdraw  from 
business  when  they  are  confronted  with  such  a  situation. 
Is  this  small  minority  under  moral  obligation  to  adopt 
either  of  these  alternatives,  when  the  effect  of  such  action 
upon  the  great  mass  of  the  underpaid  workers  is  likely  to 
be  very  slight?  The  question  would  seem  to  demand  an 
answer  in  the  affirmative.  Those  employers  who  paid  a 
living  wage  at  the  expense  of  interest  would  confer  a  con- 
crete benefit  of  great  value  upon  a  group  of  human  beings. 
Those  who  shrank  from  this  sacrifice,  and  preferred  to  go 
out  of  business,  would  at  least  have  ceased  to  co-operate 
in  an  unjust  distribution  of  wealth,  and  their  example 


370  DISTRIBUTIVE   JUSTICE 

would  not  be  entirely  without  effect  upon  the  views  of 
their  fellow  employers. 

An  Objection  and  Some  Difficulties 

Against  the  foregoing  argument  it  may  be  objected  that 
the  employer  does  his  full  duty  when  he  pays  the  labourer 
the  full  value  of  the  product  or  service.  Labour  is  a  com- 
modity of  which  wages  are  the  price;  and  the  price  is  just 
if  it  is  the  fair  equivalent  of  the  labour.  Like  any  other 
onerous  contract,  the  sale  of  labour  is  governed  by  the  re- 
quirements of  commutative  justice;  and  these  are  satisfied 
when  labour  is  sold  for  its  moral  equivalent.  What  the 
employer  is  interested  in  and  pays  for,  is  the  labourer's 
activity.  There  is  no  reason  why  he  should  take  into  ac- 
count such  an  extrinsic  consideration  as  the  labourer's  live- 
lihood. 

Most  of  these  assertions  are  correct,  platitudinously  cor- 
rect, but  they  yield  us  no  specific  guidance  because  they 
use  language  vaguely  and  even  ambiguously.  The  con- 
tention underlying  them  was  adequately  refuted  in  the  last 
chapter,  under  the  heads  of  theories  of  value  and  theories 
of  exchange  equivalence.  At  present  it  will  be  sufficient 
to  repeat  summarily  the  following  points:  if  the  value  of 
labour  is  to  be  understood  in  a  purely  economic  sense  it 
means  market  value,  which  is  obviously  not  a  universal 
measure  of  justice;  if  by  the  value  of  labour  we  mean  its 
ethical  value  we  cannot  determine  it  in  any  particular  case 
merely  by  comparing  labour  and  compensation;  we  are 
compelled  to  have  recourse  to  some  extrinsic  ethical  prin- 
ciple; such  an  extrinsic  principle  is  found  in  the  proposi- 
tion that  the  personal  dignity  of  the  labourer  entitles  him 
to  a  wage  adequate  to  a  decent  livelihood;  therefore,  the 
ethical  value  of  labour  is  always  equivalent  to  at  least  a 
living  wage,  and  the  employer  is  morally  bound  to  give 
this  much  remuneration. 

Moreover,  the  habit  of  looking  at  the  wage  contract  as 


THE    MINIMUM    OF   JUSTICE:      A    LIVING   WAGE       371 

a  matter  af  commutative  justice  in  the  mere  sense  of  con- 
tractual justice,  is  radically  defective.  The  transaction 
between  employe  and  employer  involves  other  questions  of 
justice  than  that  which  arises  immediately  out  of  the  rela- 
tion between  the  things  exchanged.  When  a  borrower 
repays  a  loan  of  ten  dollars,  he  fulfils  the  obligation  of 
justice  because  he  returns  the  full  equivalent  of  the  article 
that  he  received.  Nothing  else  is  pertinent  to  the  question 
of  justice  in  this  transaction.  Neither  the  wealth  nor  the 
poverty,  the  goodness  nor  the  badness,  nor  any  other  qual- 
ity of  either  lender  or  borrower,  has  a  bearing  on  the  jus- 
tice of  the  act  of  repayment.  In  the  wage  contract,  and 
in  every  other  contract  that  involves  the  distribution  of 
the  common  bounty  of  nature,  or  of  the  social  product,  the 
juridical  situation  is  vitally  different  from  the  transaction 
that  we  have  just  considered.  The  employer  has  obliga- 
tions of  justice,  not  merely  as  the  receiver  of  a  valuable 
thing  through  an  onerous  contract,  but  as  the  distributor 
of  the  common  heritage  of  nature.  His  duty  is  not  merely 
contractual,  but  social.  He  fulfils  not  only  an  individual 
contract,  but  a  social  function.  Unless  he  performs  this 
social  and  distributive  function  in  accordance  with  justice, 
he  does  not  adequately  discharge  the  obligation  of  the 
wage  contract.  For  the  product  out  of  which  he  pays 
wages  is  not  his  in  the  same  sense  as  the  personal  income 
out  of  which  he  repays  a  loan.  His  claim  upon  the  prod- 
uct is  subject  to  the  obligation  of  just  distribution;  the 
obligation  of  so  distributing  the  product  that  the  labourers 
who  have  contributed  to  the  product  shall  not  be  denied 
their  right  to  a  decent  livelihood  on  reasonable  terms  from 
the  bounty  of  the  earth.  On  the  other  hand,  the  activity 
of  the  labourer  is  not  a  mere  commodity,  as  money  or 
pork;  it  is  the  output  of  a  person,  and  a  person  who  has 
no  other  means  of  realising  his  inherent  right  to  a  liveli- 
hood. Consequently,  both  terms  of  the  contract,  the 
labour  and  the  compensation,  involve  other  elements  of 


2;j2  DISTRIBUTIVE   JUSTICE 

justice  than  that  which  arises  out  of  their  assumed  mutual 
equivalence. 

In  a  word,  justice  requires  the  employer  not  merely  to 
give  an  equivalent  for  labour  (an  equivalent  which  is 
determined  by  some  arbitrary,  conventional,  fantastic,  or 
impossible  attempt  to  compare  work  and  pay)  but  to  ful- 
fil his  obligation  of  justly  distributing  that  part  of  the 
common  bounty  of  the  earth  which  comes  into  his  hands 
by  virtue  of  his  social  function  in  the  industrial  process. 
How  futile,  then,  to  endeavour  by  word  juggling  to  de- 
scribe the  employer's  obligation  in  terms  of  mere  equiva- 
lence and  contractual  justice! 

Some  difficulties  occur  in  connection  with  the  wage 
rights  of  adult  males  whose  ability  is  below  the  average, 
and  female  and  child  workers.  Since  the  dignity  and  the 
needs  of  personality  constitute  the  moral  basis  of  the  claim 
to  a  decent  livelihood,  it  would  seem  that  the  inefficient 
worker  who  does  his  best  is  entitled  to  a  living  wage.  Un- 
doubtedly he  has  such  a  right  if  it  can  be  effectuated  in  the 
existing  industrial  organisation.  As  already  noted,  the 
right  of  the  workman  of  average  ability  to  a  living  wage 
does  not  become  actual  until  he  finds  an  employer  who 
would  rather  give  him  that  much  pay  than  do  without  his 
services.  Since  the  obligation  of  paying  a  living  wage  is 
not  an  obligation  to  employ  any  particular  worker,  an 
employer  may  refrain  from  hiring  or  may  discharge  any 
labourer  who  does  not  add  to  the  product  sufficient  value 
to  provide  his  wages.  For  the  employer  cannot  reason- 
ably be  expected  to  employ  any  one  at  a  positive  loss  to 
himself.  Whence  it  follows  that  he  may  pay  less  than 
living  wages  to  any  worker  whose  services  he  would  rather 
dispense  with  than  remunerate  at  that  figure.^ 

1  While  the  statement  in  the  text  applies  to  all  labourers  of  less  than 
average  ability,  it  obviously  is  applicable  only  to  individual  cases  among 
those  who  are  up  to  the  average.  These  are  the  workers  at  the 
"  margin "  of  the  labour  force  in  an  establishment,  those  who  could 
be  discharged  without  causing  the  industry  to  shut  down.    If  an  em- 


THE    MINIMUM    OF   JUSTICE:      A    LIVING   WAGE       373 

Women  and  young  persons  who  regularly  perform  a  full 
day's  work,  have  a  right  to  compensation  adequate  to  a 
decent  livelihood.  In  the  case  of  minors,  this  means  liv- 
ing at  home,  since  this  is  the  normal  condition  of  all,  and 
the  actual  condition  of  almost  all.  Adult  females  have  a 
right  to  a  wage  sufficient  to  maintain  them  away  from 
home,  because  a  considerable  proportion  of  them  live  in 
this  condition.  If  employers  were  morally  free  to  pay 
home-dwelling  women  less  than  those  adrift,  they  would 
endeavour  to  employ  only  the  former.  This  would  create 
a  very  undesirable  social  situation.  The  number  of 
women  away  from  home  who  are  forced  to  earn  their  own 
living  is  sufficiently  large  (20  to  25  per  cent,  of  the  whole) 
to  make  it  reasonable  that  for  their  sakes  the  wage  of  all 
working  women  should  be  determined  by  the  cost  of  living 
outside  the  parental  precincts.  This  is  one  of  the  social 
obligations  that  reasonably  falls  upon  the  employer  on 
account  of  his  function  in  the  present  industrial  system. 
In  all  the  American  minimum  wage  laws,  the  standard  of 
payment  is  determined  by  the  cost  of  living  away  from 
home.  Besides,  the  difference  between  the  living  costs  of 
women  in  the  two  conditions  is  not  nearly  as  great  as  is 
commonly  assumed.  Probably  it  never  amounts  to  a  dol- 
lar a  week. 

The  Family  Living  Wage 

Up  to  the  present  we  have  been  considering  the  right  of 
the  labourer  to  a  wage  adequate  to  a  decent  livelihood  for 
himself  as  an  individual.  In  the  case  of  an  adult  male, 
however,  this  is  not  sufficient  for  normal  life,  nor  for  the 
reasonable  development  of  personality.  The  great  major- 
ity of  men  cannot  live  well  balanced  lives,  cannot  attain  a 
reasonable  degree  of  self  development  outside  the  married 

ployer  would  rather  go  out  of  business  than  pay  a  living  wage  to  all  his 
necessary  labourers  of  average  ability,  he  is  morally  free  to  do  so ;  but 
he  may  not  employ  them  at  less  than  living  wages  in  order  to  obtain 
interest  on  his  capital. 


374  DISTRIBUTIVE   JUSTICE 

state.  Therefore,  family  life  is  among  the  essential  needs 
of  a  normal  and  reasonable  existence.  It  is  not,  indeed, 
so  vitally  necessary  as  the  primary  requisites  of  individual 
life,  such  as  food,  clothing,  and  shelter,  but  it  is  second  only 
to  these.  Outside  the  family  man  cannot,  as  a  rule,  com- 
mand that  degree  of  contentment,  moral  strength,  and 
moral  safety  which  are  necessary  for  reasonable  and  effi- 
cient living.  It  is  unnecessary  to  labour  this  point  fur- 
ther, as  very  few  would  assert  that  the  average  man  can 
live  a  normal  and  complete  human  life  without  marriage. 

Now,  the  support  of  the  family  falls  properly  upon  the 
husband  and  father,  not  upon  the  wife  and  mother.  The 
obligation  of  the  father  to  provide  a  livelihood  for  the  wife 
and  young  children  is  quite  as  definite  as  his  obligation  to 
maintain  himself.  If  he  has  not  the  means  to  discharge 
this  obligation  he  is  not  justified  in  getting  married.  Yet, 
as  we  have  just  seen,  marriage  is  essential  to  normal  life 
for  the  great  majority  of  men.  Therefore,  the  material 
requisites  of  normal  life  for  the  average  adult  male,  in- 
clude provision  for  his  family.  In  other  words,  his  decent 
livelihood  means  a  family  livelihood.  Consequently,  he 
has  a  right  to  obtain  such  a  livelihood  on  reasonable  terms 
from  the  bounty  of  the  earth.  In  the  case  of  the  wage 
earner,  this  right  can  be  effectuated  only  through  wages; 
therefore,  the  adult  male  labourer  has  a  right  to  a  family 
living  wage.  If  he  does  not  get  this  measure  of  remunera- 
tion his  personal  dignity  is  violated,  and  he  is  deprived  of 
access  to  the  goods  of  the  earth,  quite  as  certainly  as  when 
his  wage  is  inadequate  to  personal  maintenance.  The  dif- 
ference between  family  needs  and  personal  needs  is  a  dif- 
ference only  of  degree.  The  satisfaction  of  both  is  indis- 
pensable to  his  reasonable  life. 

Just  as  the  woman  worker  who  lives  with  her  parents 
has  a  right  to  a  wage  sufficient  to  maintain  her  away  from 
home,  so  the  unmarried  adult  male  has  a  right  to  a  family 
living  wage.     If  only  married  men  get  the  latter  wage 


THE    MINIMUM    OF   JUSTICE:      A   LIVING   WAGE       375 

they  will  be  discriminated  against  in  the  matter  of  em- 
ployment. To  prevent  this  obviously  undesirable  condi- 
tion, it  is  necessary  that  a  family  living  wage  be  recog- 
nised as  the  right  of  all  adult  male  workers.  No  other 
arrangement  is  reasonable  in  our  present  industrial  sys- 
tem. In  a  competitive  regime  the  standard  wage  for  both 
the  married  and  the  unmarried  men  is  necessarily  the  same. 
It  will  be  determined  by  the  living  costs  of  either  the  one 
class  or  the  other.  At  present  the  wage  of  the  unskilled 
is  unfortunately  adjusted  to  the  subsistence  cost  of  the 
man  who  is  not  married.  Since  two  prevailing  scales  of 
wages  are  impossible,  the  remuneration  of  the  unmarried 
must  in  the  interests  of  justice  to  the  married  be  raised  to 
the  living  costs  of  the  latter.  Moreover,  the  unmarried 
labourer  needs  more  than  an  individual  living  wage  in 
order  to  save  sufficient  money  to  enter  upon  the  responsi- 
bilities of  matrimony. 

Only  two  objections  of  any  importance  can  be  brought 
against  the  male  labourer's  claim  to  a  family  living  wage. 
The  first  is  that  just  wages  are  to  be  measured  by  the 
value  of  the  labour  performed,  and  not  by  such  an  ex- 
trinsic consideration  as  the  needs  of  a  family.  It  has  al- 
ready been  answered  in  this  and  the  preceding  chapters. 
Not  the  economic  but  the  ethical  value  of  the  service  ren- 
dered, is  the  proper  determinant  of  justice  in  the  matter 
of  wages;  and  this  ethical  value  is  always  the  equivalent 
of  at  least  a  decent  livelihood  for  the  labourer  and  his 
family.  According  to  the  second  objection,  the  members 
of  the  labourer's  family  have  no  claim  upon  the  employer, 
since  they  do  not  participate  in  the  work  that  is  remuner- 
ated. This  contention  is  valid,  but  it  is  also  irrelevant. 
The  claim  of  the  labourer's  family  to  sustenance  is  directly 
upon  him,  not  upon  his  employer;  but  the  labourer  has  a 
just  claim  upon  the  employer  for  the  means  of  meeting 
the  claims  of  his  family.  His  right  to  this  amount  of  re- 
muneration is  directly  based  neither  upon  the  needs  nor 


376  DISTRIBUTIVE   JUSTICE 

the  rights  of  his  family,  but  upon  his  own  needs,  upon  the 
fact  that  family  conditions  are  indispensable  to  his  own 
normal  life.  If  the  wife  and  young  children  were  self 
supporting,  or  were  maintained  by  the  State,  the  wage 
rights  of  the  father  would  not  include  provision  for  the 
family.  Since,  however,  family  life  involves  support  by 
the  father,  the  labourer's  right  to  such  a  life  necessarily 
includes  the  right  to  a  wage  adequate  to  family  support. 

Other  Arguments  in  Favour  of  a  Living  Wage 

Thus  far,  the  argument  has  been  based  upon  individual 
natural  rights.  If  we  give  up  the  doctrine  of  natural 
rights,  and  assume  that  all  the  rights  of  the  individual 
come  to  him  from  the  State,  we  must  admit  that  the  State 
has  the  power  to  withhold  and  withdraw  all  rights  from 
any  and  all  persons.  Its  grant  of  rights  will  be  deter- 
mined solely  by  considerations  of  social  utility.  In  the 
concrete  this  means  that  some  citizens  may  be  regarded  as 
essentially  inferior  to  other  citizens,  that  some  may  prop- 
erly be  treated  as  mere  instruments  to  the  convenience  of 
others.  Or  it  means  that  all  citizens  may  be  completely 
subordinated  to  the  aggrandisement  of  an  abstract  entity, 
called  the  State.  Neither  of  these  positions  is  logically 
defensible.  No  group  of  persons  has  less  intrinsic  worth 
than  another;  and  the  State  has  no  rational  significance 
apart  from  its  component  individuals. 

Nevertheless,  a  valid  argument  for  the  living  wage  can 
be  set  up  on  grounds  of  social  welfare.  A  careful  and 
comprehensive  examination  of  the  evil  consequences  to 
society  and  the  State  from  the  underpayment  of  any  group 
of  labourers,  would  show  that  a  universal  living  wage  is 
the  only  sound  social  policy.  Among  competent  social 
students,  this  proposition  has  become  a  commonplace.  It 
will  not  be  denied  by  any  intelligent  person  who  considers 
seriously  the  influence  of  low  wages  in  diminishing  the 
efficiency,  physical,  mental,  and  moral,  of  the  workers;  in 


THE    MINIMUM    OF   JUSTICE:      A    LIVING   WAGE       377 

increasing  the  volume  of  crime,  and  the  social  cost  of 
meeting  it;  in  the  immense  social  outlay  for  the  relief  of 
unnecessary  poverty,  sickness,  and  other  forms  of  dis- 
tress; and  in  the  formation  of  a  large  and  discontented 
proletariat.^ 

The  living  wage  doctrine  also  receives  strong  support 
from  various  kinds  of  authority.  Of  these  the  most  im- 
portant and  best  known  is  the  famous  encyclical,  "  On  the 
Condition  of  Labour,"  May  15,  1891,  by  Pope  Leo  XIIL 
"  Let  it  then  be  granted  that  workman  and  employer 
should,  as  a  rule,  make  free  agreements,  and  in  particular 
should  agree  freely  as  to  wages;  nevertheless,  there  is  a 
dictate  of  natural  justice  more  imperious  and  ancient  than 
any  bargain  between  man  and  man;  namely,  that  the  re- 
muneration should  be  sufficient  to  maintain  the  wage 
earner  and  reasonable  and  frugal  comfort."  Although 
the  Pope  refrained  from  specifying  whether  the  living 
wage  that  he  had  in  mind  was  one  adequate  merely  to  an 
individual  livelihood,  or  sufficient  to  support  a  family, 
other  passages  in  the  Encyclical  leave  no  room  for  doubt 
that  he  regarded  the  latter  as  the  normal  and  equitable 
measure  of  remuneration.  Within  a  dozen  lines  of  the 
sentence  quoted  above,  he  made  this  statement :  "If  the 
workman's  wages  be  sufficient  to  maintain  himself,  his 
wife,  and  his  children  in  reasonable  comfort,  he  will  not 
find  it  difficult,  if  he  be  a  sensible  man,  to  practise  thrift; 
and  he  will  not  fail,  by  cutting  down  expenses,  to  put  by 
some  little  savings  and  thus  secure  a  small  income." 

All  lesser  Catholic  authorities  hold  that  the  adult  male 
labourer  has  some  kind  of  moral  claim  to  a  family  living 
wage.  In  all  probability  the  majority  of  them  regard  this 
claim  as  one  of  strict  justice,  while  the  minority  would 
put  it  under  the  head  of  legal  justice,  or  natural  equity,  or 
charity.     The  differences  between  their  views  are  not  as 

1  One  of  the  best  statements  of  the  evil  social  results  of  low  wages 
will  be  found  in  Webb's  "  Industrial  Democracy,"  vol.  II,  pp.  749-766. 


^yS  DISTRIBUTIVE   JUSTICE 

important  as  the  agreements;  for  all  the  Catholic  writers 
maintain  that  the  worker's  claim  is  strictly  moral  in  its 
nature,  and  that  the  corresponding  obligation  upon  the  em- 
ployer is  likewise  of  a  moral  character. 

The  Federal  Council  of  the  Churches  of  Christ  in  Amer- 
ica, representing  the  principal  Protestant  denominations, 
has  formally  declared  in  favour  of  "a  living  wage  as  a 
minimum  in  every  industry." 

Public  opinion  likewise  accepts  the  principle  of  a  living 
wage  as  the  irreducible  minimum  of  fair  treatment  for  all 
workers.  Indeed,  it  would  be  difficult  to  find  any  im- 
portant person  in  any  walk  of  life  to-day  who  would  have 
the  temerity  to  deny  that  the  labourer  is  entitled  to  a  wage 
sufficient  for  reasonable  family  life.  Among  employers 
the  opinion  is  fairly  general  that  the  narrow  margin  of 
profit  in  competitive  industries  renders  the  burden  of 
paying  a  family  living  wage  to  all  adult  males  unfairly 
heavy;  but  the  assertion  that  the  wage  contract  is  merely 
an  economic  transaction,  having  no  relation  to  justice,  is 
scarcely  ever  uttered  publicly. 

The  Money  Measure  of  a  Living  Wage 

For  self-supporting  women  a  living  wage  is  not  less 
than  eight  dollars  per  week  in  any  city  of  the  United 
States,  and  in  some  of  our  larger  cities  it  is  from  one  to 
two  dollars  above  this  figure.  The  state  minimum  wage 
commissions  that  have  acted  in  the  matter,  have  fixed 
the  rates  not  lower  than  eight  nor  higher  than  ten  dollars 
per  week.^  These  determinations  are  in  substantial 
agreement  with  a  large  number  of  other  estimates,  both 
official  and  unofficial. 

When  the  present  writer  was  making  an  estimate  of 
the  cost  of  decent  living  for  a  family  about  eleven  years 
ago,  he  came  to  the  conclusion  that  six  hundred  dollars 

1  See  reports  of  these  commissions  in  Oregon,  Washington,  Massa- 
chusetts, Minnesota,  and  California. 


THE    MINIMUM    OF   JUSTICE  I      A   LIVING   WAGE        379 

per  year  was  the  lowest  amount  that  would  maintain  a 
man  and  wife  and  four  or  five  small  children  in  any  Amer- 
ican city,  and  that  this  sum  was  insufficient  in  some  of  the 
larger  cities.^  Since  that  time  retail  prices  seem  to  have 
risen  at  least  twenty-five  and  possibly  forty-five  per  cent.^ 
If  the  six  hundred  dollar  minimum  were  correct  in  1905  it 
should,  therefore,  be  increased  to  seven  hundred  and  fifty 
dollars  to  meet  the  present  range  of  prices.  That  this 
estimate  is  too  low  for  some  of  the  more  populous  cities, 
has  been  fully  proved  by  several  recent  investigations. 
In  191 5  the  Bureau  of  Standards  put  the  minimum  cost 
of  living  for  a  family  of  five  in  New  York  City  at  $840.18. 
About  the  same  time  the  New  York  Factory  Investigating 
Commission  gave  the  estimate  of  $876.43  for  New  York 
City,  and  $772.43  for  Buffalo.  In  1908,  when  the  cost  of 
living  was  from  ten  to  thirty  per  cent,  cheaper  than  to- 
day, the  United  States  Bureau  of  Labour  found  that,  "  ac- 
cording to  the  customs  prevailing  in  the  communities  se- 
lected for  study,"  a  fair  standard  of  Hving  for  a  family 
of  five  persons  among  mill  workers,  was  $600.74  in  the 
South,  and  from  $690.60  to  $731.64  in  Fall  River,  Massa- 
chusetts.^ 

According  to  the  "  Manly  Report  "  of  the  Federal  Com- 
mission on  Industrial  Relations,  between  two-thirds  and 
three- fourths  of  the  adult  male  labourers  of  the  United 
States  receive  less  than  $750.00  a  year,  and  the  same  pro- 
portion of  women  workers  are  paid  under  eight  dollars  a 

1 "  A  Living  Wage,"  p.  150. 

2  See  Bulletins  of  the  Federal  Bureau  of  Labour  Statistics  on  "  Re- 
tail Prices  " ;  and  Nearing,  "  Reducing  the  Cost  of  Living." 

3  "  Summary  of  the  Report  on  Condition  of  Woman  and  Child  Wage 
Earners  in  the  United  States,"  pp.  383,  384.  The  best  intensive  study 
of  family  cost  of  living  is  that  published  in  the  volume  edited  by 
Robert  C.  Chapin,  "The  Standard  of  Living  Among  Workingmen's 
Families  in  New  York  City  " ;  IQOQ-  It  led  to  the  conclusion  that  any- 
thing less  than  eight  hundred  dollars  was  insufficient  for  the  yearly 
maintenance  of  a  husband  and  wife  and  three  small  children  in  Man- 
hattan. 


380  DISTRIBUTIVE   JUSTICE 

week.  A  considerable  majority,  therefore,  of  both  male 
and  female  labourers  fail  to  obtain  living  wages.  We  are 
still  very  far  from  having  actualised  even  the  minimum 
measure  of  wage  justice. 


CHAPTER  XXIV 

THE  PROBLEM   OF   COMPLETE  WAGE  JUSTICE 

A  LIVING  wage  for  all  workers  is  merely  the  minimum 
measure  of  just  remuneration.  It  is  not  in  every  case 
complete  justice.  Possibly  it  is  not  the  full  measure  of 
justice  in  any  case.  How  much  more  than  a  living  wage 
is  due  to  any  or  all  of  the  various  classes  of  labourers? 
How  much  more  may  any  group  of  workers  demand  with- 
out exposing  itself  to  the  sin  of  extortion?  By  what 
principles  shall  these  questions  be  answered? 

The  problem  of  complete  wage  justice  can  be  conven- 
iently and  logically  considered  in  four  distinct  relations,  as 
regards :  the  respective  claims  of  the  different  classes  of 
labourers  to  a  given  amount  of  money  available  for  wage 
payments;  the  claims  of  the  whole  body  of  labourers,  or 
any  group  thereof,  to  higher  wages  at  the  expense  of 
profits;  at  the  expense  of  interest;  and  at  the  expense  of 
the  consumer. 

Comparative  Claims  of  Different  Labour  Groups 

In  the  division  of  a  common  wage  fund,  no  section  of 
the  workers  is  entitled  to  anything  in  excess  of  living 
wages  until  all  the  other  sections  have  received  that  amount 
of  remuneration.  The  need  of  a  decent  livelihood  consti- 
tutes a  more  urgent  claim  than  any  other  that  can  be 
brought  forward.  Neither  efforts,  nor  sacrifices,  nor  pro- 
ductivity, nor  scarcity  can  justify  the  payment  of  more 
than  living  wages  to  any  group,  so  long  as  any  other  group 
in  the  industry  remains  below  that  level;  for  the  extra 
compensation  will  supply  the  nonessential  needs  of  the 

381 


382  DISTRIBUTIVE   JUSTICE 

former  by  denying  the  essential  needs  of  the  latter.  The 
two  groups  of  men  will  be  treated  unequally  in  respect  of 
those  qualities  in  which  they  are  equal;  namely,  their  per- 
sonal dignity  and  their  claims  to  the  minimum  requisites 
of  reasonable  life  and  self  development.  This  is  a  viola- 
tion of  justice. 

Let  us  suppose  that  all  the  workers  among  whom  a  given 
amount  of  compensation  is  to  be  distributed,  have  already 
received  living  wages,  and  that  there  remains  a  consider- 
able surplus.  On  what  principles  should  the  surplus  be 
apportioned?  For  answer  we  turn  to  the  canons  of  dis- 
tribution, as  explained  in  chapter  xvi.  When  the  ele- 
mentary needs  of  life  and  development  have  been  supplied, 
the  next  consideration  might  seem  to  be  the  higher  or 
nonessential  needs  and  capacities.  Proportional  justice 
would  seem  to  suggest  that  the  surplus  ought  to  be  dis- 
tributed in  accordance  with  the  varying  needs  and  capaci- 
ties of  men  to  develop  their  faculties  beyond  the  minimum 
reasonable  degree.  As  we  have  already  pointed  out,  this 
would  undoubtedly  be  the  proper  rule  if  it  were  susceptible 
of  anything  like  accurate  application,  and  if  the  sum  to  be 
distributed  were  not  produced  by  and  dependent  upon 
those  who  were  to  participate  in  the  distribution.  How- 
ever, we  know  that  the  first  condition  is  impracticable, 
while  the  second  is  nonexistent.  Inasmuch  as  the  sharers 
in  the  distribution  have  produced  and  constantly  deter- 
mine the  amount  to  be  apportioned,  the  distributive  process 
must  disregard  nonessential  needs,  and  govern  itself  by 
other  canons  of  justice. 

The  most  urgent  of  these  is  the  canon  of  efforts  and 
sacrifices.  Superior  effort,  as  measured  by  unusual  will- 
exertion,  is  a  fundamental  rule  of  justice,  and  a  valid  title 
to  exceptional  reward.  Men  who  strive  harder  than  the 
majority  of  their  fellows  are  ethically  deserving  of  extra 
compensation.  At  least,  this  is  the  pure  theory  of  the 
matter.     In  practice,  the  situation  is  complicated  by  the 


THE   PROBLEM    OF   COMPLETE   WAGE  JUSTICE       383 

fact  that  unusual  effort  cannot  always  be  distinguished, 
and  by  the  further  fact  that  some  exceptional  efforts  do 
not  fructify  in  correspondingly  useful  results.  Among 
men  engaged  at  the  same  kind  of  work,  superior  effort  is 
to  a  great  extent  discernible  in  the  unusually  large  prod- 
uct. As  such  it  actually  receives  an  extra  reward  in  ac- 
cordance with  the  canon  of  productivity.  When  men  are 
employed  at  different  tasks,  unusual  efforts  cannot  gen- 
erally be  distinguished  and  compensated.  Hence  the  gen- 
eral principle  is  that  superior  efforts  put  forth  in  the  pro- 
duction of  utilities,  entitle  men  to  something  more  than 
living  wages,  but  that  the  enforcement  of  this  principle  is 
considerably  hindered  by  the  difficulty  of  discerning  such 
efforts. 

The  unusual  sacrifices  that  deserve  extra  compensation 
are  connected  with  the  costs  of  industrial  functions  and 
the  disagreeable  character  of  occupations.  Under  the 
first  head  are  included  the  expense  of  industrial  training 
and  the  debilitating  effects  of  the  work.  Not  only  justice 
to  the  worker  but  a  farsighted  view  of  social  welfare,  dic- 
tate that  all  unusual  costs  of  preparation  for  an  industrial 
craft  or  profession  should  be  repaid  in  the  form  of  un- 
usual compensation.  This  means  something  more  than  a 
living  wage.  For  the  same  reasons  the  unusual  hazards 
and  disability  resulting  from  industrial  accidents  and  dis- 
eases should  be  provided  for  by  higher  remuneration.  In 
the  absence  of  such  provision,  these  costs  will  have  to  be 
borne  by  parents,  by  society  in  the  form  of  charitable  re- 
lief, or  by  the  worker  himself  through  unnecessary  suffer- 
ing and  incapacity.  The  industry  that  does  not  provide 
for  all  these  costs  is  a  social  parasite,  the  workers  in  it  are 
deprived  of  just  compensation  for  their  unusual  sacrifices, 
and  society  suffers  a  considerable  loss  through  industrial 
friction  and  diminished  productive  efficiency.  In  so  far, 
however,  as  any  of  the  foregoing  occupational  costs  are 
borne  by  society,  as  in  the  matter  of  industrial  education, 


384  DISTRIBUTIVE   JUSTICE 

or  by  the  employer,  as  by  the  devices  of  accident  compen- 
sation or  sickness  insurance,  they  do  not  demand  pro- 
vision in  the  form  of  extra  wages. 

Other  unusual  sacrifices  that  entitle  the  worker  to  more 
than  living  wages,  are  inherent  in  disagreeable  or  despised 
occupations.  The  scavenger  and  the  bootblack  ought  to 
get  more  than  the  performers  of  most  other  unskilled 
tasks.  On  the  principles  of  comparative  individual  desert, 
they  should  receive  larger  remuneration  than  many  per- 
sons who  are  engaged  upon  skilled  but  relatively  pleasant 
kinds  of  work.  For  if  they  were  given  the  choice  of 
expending  the  time  and  money  required  to  fit  them  for  the 
latter  tasks,  or  of  taking  up  immediately  their  present  dis- 
agreeable labour,  they  would  select  the  more  pleasant  oc- 
cupations, for  the  same  or  even  a  smaller  remuneration. 
And  the  majority  of  those  who  are  now  in  the  more  skilled 
occupations  would  make  the  same  choice.  Hence  the  sac- 
rifices inherent  in  disagreeable  kinds  of  work  are  in  many 
cases  as  great  as  or  greater  than  the  sacrifices  of  prepara- 
tion for  the  more  pleasant  tasks ;  consequently  the  doers  of 
the  former  are  relatively  underpaid.  If  all  wages  were 
regulated  by  some  supreme  authority  according  to  the 
principles  of  complete  justice,  the  workers  in  disagreeable 
occupations  would  receive  something  more  than  living 
wages.  Nor  would  this  determination  of  rewards  be  in 
any  way  contrary  to  social  welfare  or  the  principle  of 
maximum  net  results;  for  the  superior  attractiveness  of 
the  other  kinds  of  work  would  draw  a  sufficient  supply  of 
labour  to  offset  the  advantage  conferred  by  higher  wages 
upon  the  disagreeable  occupations.  The  main  reason  why 
the  latter  kind  of  labour  is  so  poorly  paid  now  is  the  fact 
that  it  is  very  plentiful,  a  condition  which  is  in  turn  due 
to  the  unequal  division  of  industrial  opportunity.  Were 
the  opportunities  of  technical  education  and  of  entrance  to 
the  higher  crafts  and  professions  more  widely  diffused, 
the  labourers    offering  themselves   for  the   disagreeable 


THE   PROBLEM   OF   COMPLETE   WAGE   JUSTICE       385 

tasks  would  be  scarcer  and  their  remuneration  correspond- 
ingly larger.  This  would  be  not  only  more  comfortable 
to  the  abstract  principles  of  justice,  but  more  conducive  to 
social  efficiency. 

To  sum  up  the  discussion  concerning  the  canon  of  ef- 
forts and  sacrifices :  Labourers  have  a  just  claim  to  more 
than  living  wages  whenever  they  put  forth  unusual  efforts, 
and  whenever  their  occupations  involve  unusual  sacrifices, 
either  through  costs  of  preparation,  exceptional  hazards, 
or  inherent  disagreeableness.  The  precise  amount  of  ex- 
tra compensation  due  under  any  of  these  heads  can  be  de- 
termined, as  a  rule,  only  approximately. 

The  next  canon  to  be  considered  as  a  reason  for  more 
than  living  wages  is  that  of  productivity.  This  offers 
little  difficulty;  for  the  unusual  product  is  always  visible 
among  men  who  are  performing  the  same  kind  of  work, 
and  the  employer  is  always  willing  to  give  the  producer  of 
it  extra  compensation.  While  superior  productive  power 
which  is  based  solely  upon  superior  native  ability  has  only 
presumptive  validity  as  a  canon  of  justice,  that  is  ethically 
sufficient  in  our  workaday  world.  Moreover,  the  canon 
of  human  welfare  demands  that  superior  productivity 
receive  superior  rewards,  so  long  as  these  are  necessary  to 
evoke  the  maximum  net  product. 

The  canon  of  scarcity  has  exactly  the  same  value  as 
that  of  productivity.  Society  and  the  employer  are  well 
advised  and  are  justified  in  giving  extra  compensation  to 
scarce  forms  of  labour  when  the  product  is  regarded  as 
worth  the  corresponding  price.  This  remains  true  even 
when  the  scarcity  is  due  to  restricted  opportunity  of  prep- 
aration, rather  than  to  sacrifices  of  any  sort.  In  that  case 
the  higher  rewards  are  as  fully  justified  as  the  superior 
remuneration  of  that  superior  productivity  which  is  based 
upon  exceptional  native  endowments.  The  amount  of 
extra  compensation  which  may  properly  be  given  on  ac- 
count of  scarcity  is  determined  either  by  the  degree  of 


386  DISTRIBUTIVE   JUSTICE 

sacrifice  involved  or  by  the  ordinary  operation  of  com- 
petition. When  men  are  scarce  because  they  have  made 
exceptional  sacrifices  of  preparation,  they  ought  to  be 
rewarded  in  full  proportion  to  these  sacrifices.  When 
they  are  scarce  merely  because  of  exceptional  opportunities, 
their  extra  compensation  should  not  exceed  the  amount 
that  automatically  comes  to  them  through  the  interplay  of 
supply  and  demand. 

The  canon  of  human  welfare  has  already  received  im- 
plicit application.  When  due  regard  is  given  to  efforts, 
sacrifices,  productivity,  and  scarcity,  the  demands  of  human 
welfare,  both  in  its  individual  and  its  social  aspects,  are 
sufficiently  safeguarded. 

In  the  foregoing  pages  the  attempt  has  been  made  to 
describe  the  proportions  in  which  a  given  wage  fund  ought 
to  be  distributed  among  the  various  classes  of  labourers 
who  have  claims  upon  the  fund.  The  first  requisite  of 
justice  is  that  all  should  receive  living  wages.  It  applies 
to  all  workers  of  average  ability,  even  to  those  who  have 
no  special  qualifications  of  any  sort.  When  this  general 
claim  has  been  universally  satisfied,  those  groups  of 
workers  who  are  in  any  wise  special,  whose  qualifications 
for  any  reason  diflFerentiate  them  from  and  place  them 
above  the  average,  will  have  a  right  to  something  more 
than  living  wages.  They  will  have  the  first  claim  upon 
the  surplus  that  remains  in  the  wage  fund.  Their  claims 
will  be  based  upon  the  various  canons  of  distribution  ex- 
plained in  detail  above;  and  the  amounts  of  extra  re- 
muneration to  which  they  will  be  entitled,  will  be  deter- 
mined by  the  extent  to  which  their  special  qualifications 
differentiate  them  from  the  average  and  unspecialised 
workers.  If  the  total  available  wage  fund  is  merely  suffi- 
cient to  provide  universal  living  wages  and  the  extra  com- 
pensation due  to  the  specialised  groups,  no  section  of  the 
labour  force  will  be  justified  in  exacting  a  larger  share. 
Even  though  the  employer  should  withhold  a  part  of  the 


THE   PROBLEM   OF   COMPLETE   WAGE   JUSTICE       387 

amount  due  to  some  weaker  group,  a  stronger  group  that 
is  already  getting  its  proper  proportion  would  have  no 
right  to  demand  the  unjustly  withheld  portion.  For  this 
belongs  neither  to  the  employer  nor  to  the  powerlful  labour 
group,  but  to  the  weaker  section  of  labourers. 

This  does  not  mean  that  a  powerful  body  of  workers 
who  are  already  receiving  their  due  proportion  as  com- 
pared with  other  labour  groups,  would  not  be  justified  in 
seeking  any  increase  in  remuneration  whatever.  The  in- 
crease might  come  out  of  profits,  or  interest,  or  the  con- 
sumer, and  thus  be  in  no  sense  detrimental  to  the  rights  of 
the  other  sections  of  labourers.  This  problem  will  be  con- 
sidered a  little  later.  At  present  we  confine  our  attention 
to  the  relative  claims  of  different  labour  groups  to  a  definite 
wage  fund. 

Suppose,  however,  that  after  all  workers  have  received 
living  wages,  and  all  the  exceptional  groups  have  obtained 
those  extra  amounts  which  are  due  them  on  account  of 
efforts,  sacrifices,  productivity,  and  scarcity,  there  remains 
a  further  surplus  in  the  wage  fund.  In  what  proportions 
should  it  be  distributed?  It  should  be  equally  divided 
among  all  the  labourers.  The  proportional  justice  which 
has  been  already  established  can  be  maintained  only  by 
raising  the  present  rates  of  payment  equally  in  all  cases. 
All  the  average  or  unspecialised  groups  would  get  some- 
thing more  than  living  wages,  and  all  the  other  groups 
would  have  their  extra  compensation  augmented  by  the 
same  amount. 

Of  course,  the  wage-fund  hypothesis  which  underlies 
the  foregoing  discussion  is  not  realised  in  actual  life,  any 
more  than  was  the  "  wage  fund  "  of  the  classical  econo- 
mists. Better  than  any  other  device,  however,  it  enables 
us  to  describe  and  visualise  the  comparative  claims  of  dif- 
ferent groups  of  labourers  who  have  a  right  to  unequal 
amounts  in  excess  of  living  wages. 


388  DISTRIBUTIVE   JUSTICE 

Wages  Versus  Profits 

Let  us  suppose  that  the  wage  fund  is  properly  appor- 
tioned among  the  different  classes  of  labourers,  according 
to  the  specified  canons  of  distribution.  May  not  one  or  all 
of  the  labour  groups  demand  an  increase  in  wages  on  the 
ground  that  the  employer  is  retaining  for  himself  an  undue 
share  of  the  product? 

As  we  have  seen  in  the  last  chapter,  the  right  of  the 
labourers  to  living  wages  is  superior  to  the  right  of  the 
employer  or  business  man  to  anything  in  excess  of  that 
amount  of  profits  which  will  insure  him  against  risks,  and 
afford  him  a  decent  livelihood  in  reasonable  conformity 
with  his  accustomed  plane  of  expenditure..  It  is  also  evi- 
dent that  those  labourers  who  undergo  more  than  average 
sacrifices  have  a  claim  to  extra  compensation  which  is 
quite  as  valid  as  the  similarly  based  claim  of  the  employer 
to  more  than  living  profits.  In  case  the  business  does  not 
provide  a  sufficient  amount  to  remunerate  both  classes  of 
sacrifices,  the  employer  may  prefer  his  own  to  those  of 
his  employes,  on  the  same  principle  that  he  may  prefer  his 
own  claim  to  a  decent  livelihood.  The  law  of  charity  per- 
mits a  man  to  satisfy  himself  rather  than  his  neighbour, 
when  the  needs  in  question  are  of  the  same  degree  of 
urgency  or  importance.  As  to  those  labourers  who  turn 
out  larger  products  than  the  average,  or  whose  ability  is 
unusually  scarce,  there  is  no  practical  difficulty;  for  the 
employer  will  find  it  profitable  to  give  them  the  correspond- 
ing extra  compensation.  The  precise  question  before  us, 
then,  is  the  claims  of  the  labourers  upon  profits  for  re- 
muneration above  universal  living  wages  and  above  the 
extra  compensation  due  on  account  of  unusual  efforts, 
sacrifices,  productivity,  and  scarcity.  Let  us  call  the  wage 
that  merely  includes  all  these  factors  "  the  equitable  mini- 
mum." 

In  competitive  conditions  this  question  becomes  prac- 


THE  PROBLEM   OF   COMPLETE  WAGE  JUSTICE       389 

tical  only  with  reference  to  the  exceptionally  efficient  and 
productive  business  men.  The  great  majority  have  no 
surplus  available  for  wage  payments  in  excess  of  the 
"  equitable  minimum."  Indeed,  the  majority  do  not  now 
pay  the  full  "  equitable  minimum  " ;  yet  their  profits  do 
not  provide  them  more  than  a  decent  livelihood.  The 
relatively  small  number  of  establishments  that  show  such 
a  surplus  as  we  are  considering  have  been  brought  to  that 
condition  of  prosperity  by  the  exceptional  ability  of  their 
directors,  rather  than  by  the  unusual  productivity  of  their 
employes.  In  so  far  as  this  exceptional  directive  ability  is 
due  to  unusual  efforts  and  sacrifices,  the  surplus  returns 
which  it  produces  may  be  claimed  with  justice  by  the  em- 
ployer. In  so  far  as  the  surplus  is  the  outcome  of  excep- 
tional native  endowments,  it  may  still  be  justly  retained  by 
him  in  accordance  with  the  canon  of  productivity.  In 
other  words,  when  the  various  groups  of  workers  are 
already  receiving  the  "  equitable  minimum,"  they  have  no 
strict  right  to  any  additional  compensation  out  of  those 
rare  surplus  profits  which  come  into  existence  in  condi- 
tions of  competition. 

This  conclusion  is  confirmed  by  reference  to  the  canon 
of  human  welfare.  If  exceptionally  able  business  men 
were  not  permitted  to  retain  the  surplus  in  question  they 
would  not  exert  themselves  sufficiently  to  produce  it; 
labour  would  gain  nothing;  and  the  community  would  be 
deprived  of  the  larger  product. 

When  the  employer  is  a  corporation  instead  of  an  indi- 
vidual or  a  partnership,  and  when  it  is  operating  in  com- 
petitive conditions,  the  same  principles  are  applicable,  and 
the  same  conclusions  justified.  The  officers  and  the  whole 
body  of  stockholders  will  have  a  right  to  those  surplus 
profits  that  remain  after  the  "  equitable  minimum  "  has 
been  paid  to  the  employes.  Every  consideration  that  urges 
such  a  distribution  in  the  case  of  the  individual  business 
holds  good  for  the  corporation. 


390  DISTRIBUTIVE   JUSTICE 

The  corporation  that  is  a  monopoly  will  have  the  same 
right  as  the  competitive  concern  to  retain  for  its  owners 
those  surplus  profits  which  are  due  to  exceptional  efficiency 
on  the  part  of  the  managers  of  the  business.  That  part  of 
the  surplus  which  is  derived  from  the  extortion  of  higher 
than  competitive  prices  cannot  be  justly  retained,  since  it 
rests  upon  no  definite  moral  title.  As  we  saw  in  the  chap- 
ter on  monopoly,  the  owners  have  no  right  to  anything 
more  than  the  prevailing  rate  of  interest,  together  with  a 
fair  return  for  their  labour  and  for  any  unusual  efficiency 
that  they  may  exercise.  Should  the  surplus  in  question  be 
discontinued  by  lowering  prices,  or  should  it  be  continued 
and  distributed  among  the  labourers  ?  As  a  rule,  the  for- 
mer course  would  seem  morally  preferable.  While  the 
labourers,  as  we  shall  see  presently,  are  justified  in  con- 
tending for  more  than  the  "  equitable  minimum  "  at  the 
expense  of  the  consumer,  their  right  to  do  so  through  the 
exercise  of  monopoly  power  is  extremely  doubtful. 
Whether  this  power  is  exerted  by  themselves  or  by  the 
employer  on  their  behalf,  it  remains  a  weapon  which 
human  nature  seems  incapable  of  using  justly. 

Wages  Versus  Interest 

Turning  now  to  the  claims  of  the  labourers  as  against 
the  capitalists,  or  interest  receivers,  we  perceive  that  the 
right  to  any  interest  at  all  is  morally  inferior  to  the  right 
of  all  the  workers  to  the  "  equitable  minimum."  As  here- 
tofore pointed  out  more  than  once,  the  former  right  is 
only  presumptive  and  hypothetical,  and  interest  is  ordi- 
narily utilised  to  meet  less  important  needs  than  those  sup- 
plied by  wages.  Through  his  labour  power  the  interest 
receiver  can  supply  all  those  fundamental  needs  which  are 
satisfied  by  wages  in  the  case  of  the  labourer.  Therefore, 
it  seems  clear  that  the  capitalist  has  no  right  to  interest 
until  all  labourers  have  received  the  "  equitable  minimum." 
It  must  be  borne  in  mind,  however,  that  any  claim  of  the 


THE   PROBLEM    OF   COMPLETE   WAGE   JUSTICE       39 1 

labourer  against  interest  falls  upon  the  owners  of  the  pro- 
ductive capital  in  a  business,  upon  the  undertaker-capitalist, 
not  upon  the  loan-capitalist. 

When  all  the  labourers  in  an  industry  are  receiving  the 
"  equitable  minimum,"  have  they  a  right  to  exact  anything 
more  at  the  expense  of  interest?  By  interest  we  mean,  of 
course,  the  prevailing  or  competitive  rate  that  is  received 
on  productive  capital  —  five  or  six  per  cent.  Any  return 
to  the  owners  of  capital  in  excess  of  this  rate  is  properly 
called  profits  rather  than  interest,  and  its  relation  to  the 
claims  of  the  labourers  has  received  consideration  in  the 
immediately  preceding  section  of  this  chapter.  The  ques- 
tion, then,  is  whether  the  labourers  who  are  already  getting 
the  "equitable  minimum"  would  act  justly  in  demanding 
and  using  their  economic  power  to  obtain  a  part  or  all  of 
the  pure  interest.  No  conclusive  reason  is  available  to 
justify  a  negative  answer.  The  title  of  the  capitalist  is 
only  presumptive  and  hypothetical,  not  certain  and  uncon- 
ditional. It  is,  indeed,  sufficient  to  justify  him  in  retaining 
interest  that  comes  to  him  through  the  ordinary  processes 
of  competition  and  bargaining ;  but  it  is  not  of  such  definite 
and  compelling  moral  efiicacy  as  to  render  the  labourers 
guilty  of  injustice  when  they  employ  their  economic  power 
to  divert  further  interest  from  the  coffers  of  the  capitalist 
to  their  own  pockets.  The  interest-share  of  the  product  is 
morally  debatable  as  to  its  ownership.  It  is  a  sort  of 
no-man's  property  (like  the  rent  of  land  antecedently  to 
its  legal  assignment  through  the  institution  of  private  land- 
ownership)  which  properly  goes  to  the  first  occupant  as 
determined  by  the  processes  of  bargaining  between  em- 
ployers and  employes.  If  the  capitalists  get  the  interest- 
share  through  these  processes  it  rightfully  belongs  to  them; 
if  the  labourers  who  are  already  in  possession  of  the 
"  equitable  minimum  "  develop  sufficient  economic  strength 
to  get  this  debatable  share  they  may  justly  retain  it  as  their 
own. 


392  DISTRIBUTIVE   JUSTICE 

The  foregoing  conclusion  may  seem  to  be  a  very  un- 
satisfactory solution  of  a  problem  of  justice.  However, 
it  is  the  only  one  that  is  practically  defensible.  If  the  capi- 
talist's claim  to  interest  were  as  definite  and  certain  as  the 
labourer's  right  to  a  living  wage,  or  as  the  creditor's  right 
to  the  money  that  he  has  loaned,  the  solution  would  be 
very  simple:  the  labourers  that  we  are  discussing  would 
have  no  right  to  strive  for  any  of  the  interest.  But  the 
claim  of  the  capitalists  is  not  of  this  clear  and  conclusive 
nature.  It  is  sufficient  when  combined  with  actual  pos- 
session; it  is  not  sufficient  when  the  question  is  of  future 
possession.  The  title  of  first  occupancy  as  regards  land  is 
not  valid  until  the  land  has  been  actually  occupied;  and 
similarly  the*  claim  of  the  capitalist  to  interest  is  not  valid 
until  the  interest  has.  been  received.  If  the  economic 
forces  which  determine  actual  possession  operate  in  such  a 
way  as  to  divert  the  interest-share  to  the  labourers,  they, 
not  the  capitalists,  will  have  the  valid  moral  title,  just  as 
Brown  with  his  automobile  rather  than  Jones  with  his 
spavined  nag  will  enjoy  the  valid  title  of  first  occupancy 
to  a  piece  of  ownerless  land  which  both  have  coveted. 

This  conclusion  is  confirmed  by  reference  to  the 
rationally  and  morally  impossible  situation  that  would 
follow  from  its  rejection.  If  we  deny  to  the  labourers 
the  moral  freedom  to  strive  for  higher  wages  at  the  ex- 
pense of  the  capitalist,  we  must  also  forbid  them  to  follow 
this  course  at  the  expense  of  the  consumer.  For  the  great 
majority  of  consumers  would  stand  to  lose  advantages 
to  which  they  have  as  good  a  moral  claim  as  the  capitalists 
have  to  interest.  Practically  this  would  mean  that  the 
labourers  haver  no  right  to  seek  remuneration  in  excess  of 
the  "  equitable  minimum  " ;  for  such  excess  must  in  sub- 
stantially all  cases  come  from  either  the  consumer  or  the 
capitalist.  On  what  principle  can  we  defend  the  proposi- 
tion that  the  great  majority  of  labourers  are  forever  re- 
strained by  the  moral  law  from  seeking  more  than  bare 


THE  PROBLEM   OF   COMPLETE   WAGE   JUSTICE       393 

living  wages,  and  the  specialised  minority  from  demand- 
ing more  than  that  extra  compensation  which  corresponds 
to  unusual  efforts,  sacrifices,  productivity,  and  scarcity? 
Who  has  authorised  us  to  shut  against  these  classes  the 
doors  of  a  more  liberal  standard  of  living,  and  a  more 
ample  measure  of  self  development? 

Wuges  Versus  Prices 

The  right  of  the  labourers  to  the  "  equitable  minimum  " 
implies  obviously  the  right  to  impose  adequate  prices  upon 
the  consumers  of  the  labourer's  products.  This  is  the 
ultimate  source  of  the  rewards  of  all  the  agents  of  pro- 
duction. Suppose  that  the  labourers  are  already  receiving 
the  "  equitable  minimum."  Are  they  justified  in  seeking 
any  more  at  the  cost  of  the  consumer?  If  all  the  con- 
sumers were  also  labourers  the  answer  would  be  simple, 
at  least  in  principle :  rises  in  wages  and  prices  ought  to  be 
so  adjusted  as  to  bring  equal  gains  to  all  individuals.  The 
"  equitable  minimum  "  is  adjusted  to  the  varying  moral 
claims  of  the  different  classes  of  labourers;  therefore,  any 
rise  in  remuneration  must  be  equally  distributed  in  order 
to  leave  this  adjustment  undisturbed.  It  is  a  fact,  how- 
ever, that  a  large  part  of  the  consumers  are  not  labourers ; 
consequently  they  cannot  look  to  rises  in  wages  as  an  offset 
to  their  losses  through  rises  in  prices.  Can  they  be  justly 
required  to  undergo  this  inconvenience  for  the  benefit  of 
labourers  who  are  already  getting  the  "  equitable  mini- 
mum "  ? 

Let  us  consider  first  the  case  of  higher  wages  versus 
lower  prices.  A  few  progressive  and  efficient  manufac- 
turers of  shoes  find  themselves  receiving  large  surplus 
profits  which  are  likely  to  continue.  So  far  as  the  pre- 
sumptions of  strict  justice  are  concerned,  they  may,  owing 
to  their  superior  productivity,  retain  these  profits  for  them- 
selves. Seized,  however,  with  a  feeling  of  benevolence, 
or  a  scruple  of  conscience,  they  determine  to  divide  future 


394  DISTRIBUTIVE   JUSTICE 

profits  of  this  class  among  either  the  labourers  or  the  con- 
sumers. If  they  reduce  prices  the  labourers  will  gain 
something  as  users  of  shoes,  but  the  other  wearers  of  shoes 
will  also  be  beneficiaries.  If  the  surplus  profits  are  all 
diverted  to  the  labourers  in  the  form  of  higher  wages  the 
other  consumers  of  shoes  will  gain  nothing.  Now  thefe 
does  not  seem  to  be  any  compelling  reason,  any  certain 
moral  basis,  for  requiring  the  shoe  manufacturers  to  take 
one  course  rather  tlian  the  other.  Either  will  be  correct 
morally.  Possibly  the  most  perfect  plan  would  be  to  effect 
a  compromise  by  lowering  prices  somewhat  and  giving 
some  rise  in  wages ;  but  there  is  no  strict  obligation  to  fol- 
low this  course.  To  be  sure,  since  the  manufacturers  have 
a  right  to  retain  the  surplus  profits,  they  have  also  a  right 
to  distribute  them  as  they  prefer.  Let  us  get  rid.  of  this 
complication  by  assuming  that  the  manufacturers  are  in- 
different concerning  the  disposition  of  the  surplus,  leaving 
the  matter  to  be  determined  by  the  comparative  economic 
strength  of  labourers  and  consumers.  In  such  a  situation 
it  is  still  clear  that  either  of  the  two  classes  would  be 
justified  in  striving  to  secure  any  or  all  of  the  surplus. 
No  definite  moral  principle  can  be  adduced  to  the  contrary. 
To  put  the  case  in  more  general  terms :  there  exists  no 
sufficient  reason  for  maintaining  that  the  gains  of  cheaper 
production  should  go  to  the  consumer  rather  than  to  the 
labourer,  or  to  the  labourer  rather  than  to  the  ^consumer, 
so  long  as  the  labourer  is  already  in  receipt  of  the  "  equi- 
table minimum." 

Turning  now  to  the  question  of  higher  wages  at  the 
cost  of  higher  prices,  we  note  that  this  would  result  in  at 
least  temporary  hardship  to  four  classes  of  persons:  the 
weaker  groups  of  wage  earners;  all  self  employing  per- 
sons, such  as  farmers,  merchants,  and  manufacturers;  the 
professional  classes;  and  persons  whose  principal  income 
was  derived  from  rent  or  interest.  All  these  groups 
would  have  to  pay  more  for  the  necessaries,  comforts,  and 


THE   PROBLEM   OF   COMPLETE   WAGE   JUSTICE       395 

luxuries  of  living,  without  being  immediately  able  to  raise 
their  own  incomes  correspondingly. 

Nevertheless,  the  first  three  classes  could  in  the  course 
of  time  force  an  increase  in  their  revenues  sufficient  to 
offset  at  least  the  more  serious  inconveniences  of  the  in- 
crease in  prices.  So  far  as  the  wage  earners  are  con- 
cerned, it  is  understood  that  all  these  would  have  a  right 
to  whatever  advance  in  the  money  measure  of  the  "  equi- 
table minimum  "  was  necessary  to  neutralise  the  higher  cost 
of  living  resulting  from  the  success  of  the  more  powerful 
groups  in  obtaining  higher  wages.  The  right  of  a  group 
to  the  "  equitable  minimum  "  of  remuneration  is  obviously 
superior  to  the  right  of  another  group  to  more  than  that 
amount.  And  a  supreme  wage-determining  authority 
would  act  on  this  principle.  It  cannot  be  shown,  however, 
that  in  the  absence  of  any  such  authority  empowered  to 
protect  the  "  equitable  minimum  "of  the  weaker  labourers, 
the  more  powerful  groups  are  obliged  to  refrain  from  de- 
manding extra  remuneration.  The  reason  of  this  we  shall 
see  presently.  In  the  meantime  we  call  attention  to  the 
fact  that,  owing  to  the  greater  economic  opportunity  re- 
sulting from  the  universal  prevalence  of  the  "  equitable 
minimum  "  and  of  industrial  education,  even  the  weaker 
groups  of  wage  earners  would  be  able  to  obtain  some  in- 
creases in  wages.  In  the  long  run  the  more  powerful 
groups  would  enjoy  only  those  advantages  which  arise  out 
of  superior  productivity  and  exceptional  scarcity.  These 
two  factors  are  fundamental,  and  could  not  in  any  system 
of  industry  be  prevented  from  conferring  advantages  upon 
their  possessors. 

As  regards  the  self  employing  classes,  the  remedy  for 
any  undue  hardship  suffered  through  the  higher  prices  of 
commodities  would  be  found  in  a  discontinuance  of  their 
present  functions  until  a  corresponding  rise  had  occurred 
in  the  prices  of  their  own  products.  They  could  do  this 
partly  by  organisation,  and  partly  by  entering  into  com- 


396  DISTRIBUTIVE   JUSTICE 

petition  with  the  wage  earners.  Substantially  the  same 
recourse  would  be  open  to  the  professional  classes.  In  due 
course  of  time,  therefore,  the  remuneration  of  all  workers, 
whether  employes  or  self  employed  or  professional,  would 
tend  to  be  in  harmony  with  the  canons  of  efforts,  sacrifices, 
productivity,  scarcity,  and  human  welfare. 

Since  the  level  of  rent  is  fLxed  by  forces  outside  the  con- 
trol of  labourers,  employers,  or  landowners,  the  receivers 
thereof  would  be  unable  to  offset  its  decreased  purchasing 
power  by  increasing  its  amount.  However,  this  situation 
would  not  be  inherently  unjust,  nor  even  inequitable. 
Like  interest,  rent  is  a  "  workless  "  income,  and  has  only  a 
presumptive  and  hypothetical  justification.  Therefore,  the 
moral  claim  of  the  rent  receiver  to  be  protected  against  a 
decrease  in  the  purchasing  power  of  his  income,  is  inferior 
to  the  moral  claim  of  the  labourer  to  use  his  economic 
power  for  the  purpose  of  improving  his  condition  beyond 
the  limits  of  welfare  fixed  by  the  "  equitable  minimum." 
What  is  true  of  the  rent  receiver  in  this  respect  applies 
likewise  to  the  case  of  the  capitalist.  As  we  saw  a  few 
pages  back,  the  wage  earners  are  morally  free  to  take  this 
course  at  the  expense  of  interest.  Evidently  they  may  do 
the  same  thing  when  the  consequence  is  merely  a  diminu- 
tion in  its  purchasing  power.  To  be  sure,  if  capital  owners 
should  regard  their  sacrifices  in  saving  as  not  sufficiently 
rewarded,  owing  either  to  the  low  rate  or  the  low  purchas- 
ing power  of  interest,  they  would  be  free  to  diminish  or 
discontinue  saving  until  the  reduced  supply  of  capital  had 
brought  about  a  rise  in  the  rate  of  interest.  Should  they 
refrain  from  this  course  they  would  show  that  they  were 
satisfied  with  the  existing  situation.  Hence  they  would 
suffer  no  wrong  at  the  hands  of  the  labourers  who  forced 
up  wages  at  the  expense  of  prices. 

Two  objections  come  readily  to  mind  against  the  fore- 
going paragraphs.  The  more  skilled  labour  groups  might 
organise  themselves  into  a  monopoly,  and  raise  their  wages 


THE   PROBLEM   OF   COMPLETE   WAGE   JUSTICE       397 

SO  high  as  to  inflict  the  same  degree  of  extortion  upon  con- 
sumers as  that  accomplished  by  a  monopoly  of  capitalists. 
This  is,  indeed,  possible.  The  remedy  would  be  interven- 
tion by  the  State  to  fix  maximum  wages.  Just  where  the 
maximum  limit  ought  to  be  placed  is  a  problem  that  could 
be  solved  only  through  study  of  the  circumstances  of  the 
case,  on  the  basis  of  the  canons  of  efforts,  sacrifices,  pro- 
ductivity, scarcity,  and  human  welfare.  The  second  ob- 
jection calls  attention  to  the  fact  that  we  have  already  de- 
clared that  the  more  powerful  labour  groups  would  not  be 
justified  in  exacting  more  than  the  "  equitable  minimum  " 
out  of  a  common  wage  fund,  so  long  as  any  weaker  group 
was  below  that  level;  yet  this  is  virtually  what  would 
happen  when  the  former  caused  prices  to  rise  to  such  an 
extent  that  the  weaker  workers  would  be  forced  below  the 
"  equitable  minimum  "  through  the  increased  cost  of  liv- 
ing. While  this  contingency  is  likewise  possible,  it  is  not 
a  sufficient  reason  for  preventing  any  group  of  labourers 
from  raising  their  remuneration  at  the  expense  of  prices. 
Not  every  rise  in  prices  would  effect  the  expenditures  of 
the  weaker  sections  of  the  wage  earners.  In  some  cases 
the  burden  would  be  substantially  all  borne  by  the  better 
paid  workers  and  the  self  employing,  professional,  and 
propertied  classes.  When  it  did  fall  to  any  extent  upon 
the  weaker  labourers,  causing  their  real  wages  to  fall  below 
the  "  equitable  minimum,"  it  could  be  removed  within  a 
reasonable  time  by  organisation  or  by  legislation.  Even 
if  these  measures  were  found  ineffective,  if  some  of  the 
weaker  groups  of  workers  should  suffer  through  the  estab- 
lishment of  the  higher  prices,  this  arrangement  would  be 
preferable  on  the  whole  to  one  in  which  no  class  of 
labourers  was  permitted  to  raise  its  remuneration  above  the 
"  equitable  minimum  "  at  the  expense  of  prices.  A  restric- 
tion of  this  sort,  whether  by  the  moral  law  or  by  civil 
regulation,  would  tend  to  make  wage  labour  a  status  with 
no  hope  of  pecuniary  progress. 


39^  DISTRIBUTIVE   JUSTICE 

It  is  true  that  a  universal  and  indefinite  increase  of 
wages  at  the  expense  of  prices  might  at  length  leave  the 
great  majority  of  the  labourers  no  better  off  than  they 
were  when  they  had  merely  the  "  equitable  m.inimum." 
Such  would  certainly  be  the  result  if  the  national  product 
were  only  sufficient  to  provide  the  "  equitable  minimum  " 
for  all  workers,  and  that  volume  of  incomes  for  the  other 
agents  of  production  which  was  required  to  evoke  from 
them  a  fair  degree  of  productive  efficiency.  In  that  case 
the  higher  wages  would  be  an  illusion.  The  gain  in  the 
amount  of  money  would  be  offset  by  the  loss  in  its  pur- 
chasing power.  Even  so,  this  condition  would  be  greatly 
superior  to  a  regime  in  which  the  labourers  were  univer- 
sally prevented  from  making  any  effort  to  raise  their  wages 
above  a  fixed  maximum. 

Concluding  Remarks 

All  the  principles  and  conclusions  defended  in  this  chap- 
ter have  been  stated  with  reference  to  the  present  dis- 
tributive system,  with  its  free  competition  and  its  lack  of 
legal  regulation.  Were  all  incomes  and  rewards  fixed  by 
some  supreme  authority,  the  same  canons  of  justice  would 
be  applicable,  and  the  application  would  have  to  be  made 
in  substantially  the  same  way,  if  the  authority  were  de- 
sirous of  establishing  the  greatest  possible  measure  of 
distributive  justice.  The  main  exception  to  this  statement 
would  occur  in  relation  to  the  problem  of  raising  wages 
above  the  "  equitable  minimum  "  at  the  expense  of  prices. 
In  making  any  such  increase,  the  wage-fixing  authority 
would  be  obliged  to  take  into  account  the  effects  upon  the 
other  classes  of  labourers,  and  upon  all  the  non-wage- 
earning  classes.  Substantially  the  same  difficulties  would 
confront  the  government  in  a  collectivist  organisation  of 
industry.  The  effect  that  a  rise  in  the  remuneration  of 
any  class  would  produce,  through  a  rise  in  the  prices  of 
commodities,  upon  the  purchasing  power  of  the  incomes  of 


THE   PROBLEM   OF   COMPLETE   WAGE   JUSTICE       399 

Other  classes,  would  have  to  be  considered  and  as  nearly 
as  possible  ascertained.  This  would  be  no  simple  task. 
Simple  or  not,  it  would  have  to  be  faced ;  and  the  guiding 
ethical  principles  would  always  remain  efforts,  sacrifices, 
productivity,  scarcity,  and  human  welfare. 

The  greater  part  of  the  discussion  carried  on  in  this 
chapter  has  a  highly  theoretical  aspect.  From  the  nature 
of  the  subject  matter  this  was  inevitable.  Nevertheless 
the  principles  that  have  been  enunciated  and  applied  seem 
to  be  incontestable.  In  so  far  as  they  are  enforcible  in 
actual  life,  they  seem  capable  of  bringing  about  a  wider 
measure  of  justice  than  any  other  ethical  rules  that  are 
available. 

Possibly  the  applications  and  conclusions  have  been  laid 
down  with  too  much  definiteness  and  dogmatism,  and  the 
whole  matter  has  been  made  too  simple.  On  the  other 
hand,  neither  honesty  nor  expediency  is  furthered  by  an 
attitude  of  intellectual  helplessness,  academic  hyper- 
modesty,  or  practical  agnosticism.  If  there  exist  moral 
rules  and  rational  principles  applicable  to  the  problem  of 
wage  justice,  it  is  our  duty  to  state  and  apply  them  as 
fully  as  we  can.  Obviously  we  shall  make  mistakes  in 
the  process;  but  until  the  attempt  is  made,  and  a  certain 
(and  very  large)  number  of  mistakes  are  made,  there  will 
be  no  progress.  We  have  no  right  to  expect  that  ready- 
made  applications  of  the  principles  will  drop  from  Heaven. 

For  a  long  time  to  come,  however,  many  of  the  ques- 
tions discussed  in  this  chapter  will  be  devoid  of  large 
practical  interest.  The  problem  immediately  confronting 
society  is  that  of  raising  the  remuneration  and  strengthen- 
ing generally  the  economic  position  of  those  labourers  who 
are  now  below  the  level,  not  merely  of  the  "  equitable 
minimum,"  but  of  a  decent  livelihood.  This  problem  will 
be  the  subject  of  the  next  chapter. 


CHAPTER  XXV 

METHODS  OF  INCREASING  WAGES 

Proposals  for  the  reform  of  social  conditions  are  im- 
portant in  proportion  to  the  magnitude  of  the  evils  which 
they  are  designed  to  remove,  and  are  desirable  in  propor- 
tion to  their  probable  efficacy.  Applying  these  principles 
to  the  labour  situation,  we  find  that  among  the  remedies 
proposed  the  primacy  must  be  accorded  to  a  minimum 
wage.  It  is  the  most  important  project  for  improving  the 
condition  of  labour  because  it  would  increase  the  com- 
pensation of  some  two-thirds  of  the  wage  earners,  and 
because  the  needs  of  this  group  are  greater  and  more 
urgent  than  the  needs  of  the  better-paid  one-third.  The 
former  are  below  the  level  of  reasonable  living,  while  the 
latter  are  merely  deprived  of  the  opportunities  of  a  more 
ample  and  liberal  scale  of  living.  Hence  the  degree  of 
injustice  suffered  by  the  former  is  much  greater  than  in 
the  case  of  the  latter.  A  legal  minimum  wage  is  the  most 
desirable  single  measure  of  industrial  reform  because  it 
promises  a  more  rapid  and  comprehensive  increase  in  the 
wages  of  the  underpaid  than  any  alternative  device  that  is 
now  available.  The  superior  importance  of  a  legally  estab- 
lished minimum  wage  is  obvious;  its  superior  desirability 
will  form  the  subject  of  the  pages  that  are  immediately  to 
follow. 

The  Minimum  Wage  in  Operation 

Happily  the  advocate  of  this  measure  is  no  longer  re- 
quired to  meet  the  objection  that  it  is  novel  and  utterly 
uncertain.     For  more  than  twenty  years  it  has  been  in 

400 


METHODS   OF   INCREASING   WAGES  4OI 

Operation  in  Australasia.  It  was  implicit  in  the  com- 
pulsory arbitration  act  of  New  Zealand,  passed  in  1894; 
for  the  wages  which  the  arbitration  boards  enforce  are 
necessarily  the  lowest  that  the  affected  employers  are  per- 
mitted to  pay;  besides,  the  district  conciliation  boards  are 
empowered  by  the  law  to  fix  minimum  wages  on  complaint 
of  any  group  of  underpaid  workers.  The  first  formal  and 
explicit  minimum  wage  law  of  modern  times  was  enacted 
by  the  state  of  Victoria  in  1896.  In  the  beginning  it 
applied  to  only  six  trades,  but  it  has  been  extended  at 
various  legislative  sessions,  so  that  to-day  it  protects  sub- 
stantially all  the  labourers  of  the  state,  except  those  em- 
ployed in  agriculture.  Since  the  year  1900  all  the  other 
states  of  Australia  have  made  provision  for  the  establish- 
ment of  minimum  wages.  At  present,  therefore,  the  legal 
minimum  wage  in  some  form  prevails  throughout  the 
whole  of  Australasia. 

In  1909  the  Trade  Boards  Act  authorised  the  applica- 
tion of  this  device  to  four  trades  in  Great  Britain.  In 
19 1 3  the  provisions  of  the  Act  were  made  applicable  to 
four  other  trades,  and  in  1914  to  a  third  group  of  four 
industries.  A  special  minimum  wage  law  was  in  1912 
enacted  to  govern  the  entire  coal  mining  industry  of  the 
country. 

The  first  minimum  wage  law  in  the  United  States  was 
passed  in  191 2  by  Massachusetts.  It  has  been  followed 
by  similar  legislation  in  ten  other  states ;  namely,  Arkansas, 
California,  Colorado,  Kansas,  Minnesota,  Nebraska,  Ore- 
gon, Utah,  Washington,  and  Wisconsin.  California  has 
adopted  a  constitutional  amendment  which  specifically 
authorises  minimum  wage  legislation  for  women  and 
minors,  and  Ohio  added  a  similar  provision  to  her  con- 
stitution which  applies  to  men  as  well. 

The  minimum  wage  statutes  of  Australasia  and  Great 
Britain  cover  all  classes  of  workers,  but  those  of  the 
JJnited  States  are  restricted  to  minors  and  women.     With 


402  DISTRIBUTIVE   JUSTICE 

the  exception  of  the  Utah  act,  all  the  important  laws  on 
this  subject  in  all  three  regions  establish  minimum  wages 
indirectly,  by  authorising  commissions  and  wage  boards  to 
determine  the  actual  rates.  In  Australasia  and  Great 
Britain  the  statutes  do  not  attempt  to  specify  any  standard 
to  which  the  wage  determinations  of  the  boards  must  con- 
form, but  the  tendency  in  the  former  country  in  recent 
years  has  been  to  enforce  a  living  wage  as  the  minimum; 
that  is,  wage  rates  sufficiently  high  to  provide  a  decent 
family  livelihood  for  men,  and  a  reasonable  personal  live- 
lihood for  women  and  minors.  All  the  laws  in  America 
but  one  require  the  commissions  to  establish  living  wages. 
In  Utah  no  commission  is  provided  for,  as  the  law  itself 
specifies  in  terms  of  money  the  minimum  rates  of  remu- 
neration that  the  employers  of  women  are  permitted  to 
pay. 

The  effectiveness  of  the  laws  that  have  been  put  into 
operation  is  at  least  as  great  as  their  friends  had  dared  to 
hope.  According  to  Professor  M.  B.  Hammond  of  Ohio, 
who  investigated  the  situation  on  the  spot  in  the  winter  of 
1911-1912,  the  people  of  Australasia  have  accepted  the 
minimum  wage  "  as  a  permanent  policy  in  the  industrial 
legislation  of  that  part  of  the  world."  Professor  Ham- 
mond's observations,  and  the  replies  of  the  Chief  Factory 
Inspector  of  Melbourne  to  the  New  York  Factory  In- 
vestigating Commission,  show  the  main  effects  of  mini- 
mum wage  legislation  to  be  as  follows :  sweating  and 
strikes  have  all  but  disappeared;  the  efficiency  of  the 
workers  has  on  the  whole  increased;  the  number  of 
workers  unable  to  earn  the  legal  minimum  has  not  been  as 
great  as  most  persons  had  feared,  and  almost  all  of  them 
have  obtained  employment  at  lower  remuneration  through 
special  permits;  the  legal  minimum  has  not  only  not  be- 
come the  actual  maximum,  but  is  exceeded  in  the  case  of 
the  majority  of  workers;  no  evidence  exists  to  show  that 
any  industry  has  been  crippled,  or  forced  to  move  out  of 


METHODS   OF   INCREASING   WAGES  403 

the  country;  with  the  exception  of  a  very  few  instances, 
the  prices  of  commodities  have  not  been  raised  by  the  law.^ 

In  the  four  trades  of  Great  Britain  which  were  first 
brought  under  the  operation  of  the  Trade  Boards  Act, 
and  which  presented  some  of  the  worst  examples  of 
economic  oppression,  the  beneficial  effects  of  the  minimum 
wage  have  been  even  more  striking  than  in  Australasia. 
Wages  have  been  considerably  raised,  in  some  cases  as 
high  as  one  hundred  per  cent. ;  dispirited  and  helpless 
workers  have  gained  courage,  power,  and  self-respect  to 
such  an  extent  as  to  increase  considerably  their  member- 
ship in  trade  unions,  and  to  obtain  in  several  instances  fur- 
ther increases  in  remuneration  beyond  the  legal  minimum; 
the  compensation  of  the  better  paid  labourers  has  not  been 
reduced  to  the  level  fixed  by  the  trade  boards;  the  effi- 
ciency of  both  employes  and  productive  processes  has  been 
on  the  whole  increased;  the  number  of  persons  forced  out 
of  employment  by  the  law  is  negligible ;  no  important  rise 
of  prices  is  traceable  to  the  law;  and  the  number  of  busi- 
ness concerns  unable  to  pay  the  increase  in  wages  is  too 
small  to  deserve  serious  consideration.  All  these  results 
had  been  established  before  the  outbreak  of  the  war.^ 

The  legal  minimum  wage  has  been  carried  into  effect  in 
only  four  states  of  our  own  country.  It  covers  practically 
all  the  industries  employing  women  and  minors  in  Oregon 
and  Washington,  all  the  working  women  and  girls  of 
Utah,  and  the  women  and  minors  of  a  few  trades  in  Massa- 

1  See  articles  by  Hammond  in  the  American  Economic  Review,  June, 
1913,  and  in  the  Annals  of  the  American  Academy  of  Political  and 
Social  Science,  July,  1913 ;  and  page  62  of  the  Appendix  to  the  third 
volume  of  the  Report  of  the  New  York  State  Factory  Investigating 
Commission. 

2  See  the  replies  of  the  London  Board  of  Trade  to  the  N.  Y.  Factory 
Investigating  Commission,  on  pages  77,  78  of  the  volume  cited  above ; 
and  especially  the  two  monographs  by  R.  H.  Tawney,  "  The  Estab- 
lishment of  Minimum  Rates  in  the  Chain-Making  Industry,"  and  "  The 
Establishment  of  Minimum  Rates  in  the  Tailoring  Industry,"  London ; 
1914  and  1915. 


404  DISTRIBUTIVE   JUSTICE 

chusetts.  The  rates  established  for  experienced  women 
vary  from  $7.50  per  week  in  Utah  to  ten  dollars  a  week 
for  some  classes  in  Washington.  As  the  first  wage  de- 
terminations were  put  into  effect  only  in  191 3,  American 
experience  has  been  too  short  as  well  as  too  narrow  to 
warrant  certain  conclusions.  So  far  as  it  has  been  ap- 
plied, however,  the  legal  minimum  wage  has  been  as  suc- 
cessful in  the  United  States  as  in  Australasia  or  Great 
Britain.  All  competent  witnesses  agree  that  it  has 
brought  a  considerable  increase  in  wages  to  a  considerable 
proportion  of  the  women  and  minors  in  the  industries  in 
which  it  is  operative,  and  that  it  has  neither  thrown  any 
important  number  of  workers  out  of  employment  nor 
forced  any  important  concern  out  of  business.  Speaking 
of  the  three  leading  industries  in  which  minimum  wages 
were  first  established  in  Washington,  the  Industrial  Wel- 
fare Commission  of  that  state  testifies :  "  Seldom  has  any 
piece  of  legislation,  in  prospect,  engendered  so  much  dis- 
cussion and  so  much  criticism,  as  did  the  minimum  wage 
law,  with  the  intricacies  of  its  ramifications  touching 
almost  every  industry  in  the  state,  large  or  small,  and  the 
family  of  nearly  every  wage  earner;  seldom,  too,  has  any 
law,  in  actuality,  been  so  well  received,  its  application  been 
accomplished  with  so  little  open  opposition,  and,  for  a  law 
of  this  character,  has  been  attended  with  so  little  industrial 
disturbance  as  that  same  minimum  wage  law.  None  of 
the  dire  predictions  made  prior  to  the  passage  of  the  law 
have  come  about  to  an  extent  that  questions  the  general 
efficiency  of  the  law.  There  has  been  no  wholesale  dis- 
charge of  women  employes,  no  wholesale  levelling  of 
wages,  no  wholesale  replacing  of  higher  paid  workers  by 
cheaper  help,  no  tendency  to  make  the  minimum  the  maxi- 
mum, while  the  employers  of  the  state  in  general  have 
been  following  the  letter  and  spirit  of  the  law,  and  aiding 
greatly  in  its  application.  .  .  .  The  law,  in  other  words, 
has  advanced  the  wages  of  practically  sixty  per  cent,  of  the 


METHODS   OF   INCREASING   WAGES  405 

workers  in  these  industries,  and  has  done  it  without  serious 
opposition  at  a  time  when  business  conditions  were  none 
too  good."  ^  The  Bureau  of  Labour  Statistics  of  the 
United  States  investigated  the  operation  of  the  minimum 
wage  in  the  mercantile  estabHshments  of  Oregon  at  the 
end  of  the  first  year.  The  conclusions  of  the  investigators 
were  in  brief  that  both  the  number  and  the  proportion  of 
women  getting  the  legal  minimum  ($9.25  per  week)  for 
adults  had  increased,  that  the  proportion  obtaining  more 
than  this  rate  had  likewise  increased,  that  those  who  had 
received  a  rise  in  remuneration  did  not  show  any  decline 
in  efficiency,  that  women  had  not  been  displaced  by  men, 
and  that  the  average  increase  in  the  labour  cost  resulting 
from  the  advance  in  wages  was  only  three  mills  on  each 
dollar  of  sales. ^  The  effects  of  the  Utah  law  during  the 
first  year  of  its  operation  were  summarised  by  the  Labour 
Commissioner,  Mr.  H.  T.  Haines,  as  follows:  a  rise  in 
the  wages  of  a  "  number  of  women  and  girls  who  most 
needed  the  additional  sums  of  money " ;  increased  effi- 
ciency of  female  workers  admitted  by  most  employers ;  but 
few  cases  of  women  or  girls  utterly  deprived  of  employ- 
ment by  the  law ;  none  of  the  higher  paid  women  suffered 
a  reduction  in  wages ;  and  ninety  per  cent,  of  the  employers 
are  satisfied  with  the  minimum  wage  statute.^  So  far  as 
the  law  has  been  applied  in  Massachusetts,  it  seems  to  be 
relatively  as  successful  as  in  the  other  three  states.* 

The  Question  of  Constitutionality 

The  principal  reason  why  the  minimum  wage  laws  on 
the  statute  books  of  the  other  seven  states  have  not  been 

1 "  First  Biennial  Report  of  the  Industrial  Welfare  Commission  of 
Washington,"  pp.  13,  1 5- 

2  "  Effect  of  \Iinimum  Wage  Determinations  in  Oregon."    Bulletin 
No.  176  of  United  States  Bureau  of  Labour  Statistics. 

3  From  a  paper  read  before  the  National  Convention  of  the  Associa- 
tion of  Government  Labour  Officials,  Nashville,  Tenn.,  June  9,  1914. 

*  See  Bulletins  of  Massachusetts  Minimum  Wage  Commission. 


406  DISTRIBUTIVE   JUSTICE 

carried  into  effect,  is  the  uncertainty  of  the  vahdity  of 
minimum  wage  legislation  in  our  constitutional  system. 
In  November,  1914,  a  district  judge  granted  a  writ  of 
injunction,  restraining  the  Minimum  Wage  Commission 
of  Minnesota  from  enforcing  their  wage  determinations, 
on  the  ground  that  the  law  attempted  to  delegate  legisla- 
tive power,  and  that  its  provisions  violated  that  section  of 
the  fourteenth  amendment  to  the  United  States  Constitu- 
tion which  forbids  any  state  to  deprive  a  person  of  life, 
liberty,  or  property  without  due  process  of  law.  One  of 
the  courts  of  Arkansas  has  taken  substantially  the  same 
position.  The  second  objection  urged  by  the  Minnesota! 
judge  is  probably  much  the  more  serious  of  the  two,  and 
is  the  one  upon  which  chief  emphasis  has  been  laid  in  the 
briefs  filed  in  various  courts  by  the  opponents  of  minimum 
wage  legislation.  As  regards  labour  legislation,  "  due 
process  of  law  "  may  be  practically  translated,  "  reason- 
able and  necessary  exercise  of  the  State's  police  power." 
And  the  police  power  means  that  indefinite  power  of  the 
State  to  legislate  for  the  health,  safety,  morals,  and  wel- 
fare of  the  community.^  Now  it  is  obvious  that  a  mini- 
mum wage  law  deprives  both  employer  and  employe  of 
some  liberty  of  contract,  and  also  that  it  virtually  deprives 
the  former  of  some  property,  inasmuch  as  it  generally  in- 
creases his  outlay  for  wages.  On  the  other  hand,  this 
restriction  of  liberty  and  equivalent  diminution  of  property 
seem  to  be  carried  out  in  harmony  with  due  process  of 
law,  since  they  constitute  an  exercise  of  the  police  power 
of  the  State  on  behalf  of  the  general  welfare.  Some 
months  before  the  Minnesota  judge  granted  the  writ  of 
injunction  against  the  enforcement  of  the  minimum  wage 
law  of  that  state,  a  lower  court  and  the  Supreme  Court  of 
Oregon  had  pronounced  the  Oregon  statute  constitutional, 

1  See  the  excellent  and  varied  series  of  papers  on  the  subject  in 
Orth's  "  The  Relation  of  Government  to  Property  and  Industry,"  pp. 
103-178.    Ginn  &  Company;  1915. 


METHODS  OF  INCREASING   WAGES  407 

as  a  legitimate  exercise  of  the  police  power.  An  appeal 
from  this  judgment  was  argued  in  the  Supreme  Court  of 
the  United  States,  Dec.  17,  19 14,  but  no  decision  has  yet 
(October,  191 6)  been  rendered.  Until  the  highest  court 
has  spoken  on  the  question  of  constitutionality,  no  state 
is  likely  to  take  any  further  step  toward  establishing  mini- 
mum wages.  Should  the  decision  of  the  Supreme  Court 
be  unfavourable  valid  minimum  wage  legislation  will  be 
impossible  without  an  amendment  of  the  United  States 
Constitution.^ 

The  Ethical  and  Political  Aspects 

Whether  it  be  considered  from  the  viewpoint  of  ethics, 
politics,  or  economics,  the  principle  of  the  legal  minimum 
wage  is  impregnable.  The  State  has  not  only  the  moral 
right  but  the  moral  duty  to  enact  legislation  of  this  sort, 
whenever  any  important  group  of  labourers  are  receiving 
less  than  living  wages.  One  of  the  elementary  functions 
and  obligations  of  the  State  is  to  protect  citizens  in  the 
enjoyment  of  their  natural  rights;  and  the  claim  to  a  liv- 
ing wage  is,  as  we  have  seen,  one  of  the  natural  rights  of 
the  person  whose  wages  are  his  only  means  of  livelihood. 
Therefore,  the  establishment  of  minimum  living  wages  is 
not  among  the  so-called  "  optional  functions  "  of  the  State 
in  our  present  industrial  society.  Whenever  it  can  be 
successfully  performed,  it  is  a  primary  and  necessary  func- 
tion. So  far  as  political  propriety  is  concerned,  the  State 
may  as  reasonably  be  expected  to  protect  the  citizen  against 
the  physical,  mental,  and  moral  injury  resulting  from  an 
unjust  wage  contract,  as  to  safeguard  his  money  against 
the  thief,  his  body  against  the  bully,  or  his  life  against  the 

iThe  arguments  for  and  against  the  constitutionality  of  a  legal 
minimum  wage  are  adequately  presented  in  the  briefs,  respectively,  of 
Louis  D.  Brandeis  and  Rome  G.  Brown,  in  the  cases  of  Stettler  vs. 
O'Hara  and  Simpson  vs.  O'Hara.  The  former  is  published  by  the 
National  Consumers'  League,  New  York,  and  the  latter  by  the  Review 
•Publishing  Company,  Minneapolis. 


408  DISTRIBUTIVE   JUSTICE 

assassin.  In  all  four  cases  the  essential  welfare  of  the 
individual  is  injured  or  threatened  through  the  abuse  of 
superior  force  and  cunning.  Inasmuch  as  the  legal  mini- 
mum wage  is  ethically  legitimate,  the  question  of  its  enact- 
ment is,  politically  speaking,  entirely  a  question  of 
expediency. 

The  Economic  Aspect 

Now  the  question  of  expediency  is  mainly  economic. 
A  great  deal  of  nonsense  has  been  written  and  spoken  about 
the  alleged  conflict  between  the  legal  minimum  wage  and 
"  economic  law."  Economists  have  used  no  such  lan- 
guage, indeed;  for  they  know  that  economic  laws  are 
merely  the  expected  uniformities  of  social  action  in  given 
circumstances.  The  economists  know  that  economic  laws 
are  no  more  opposed  to  a  legal  minimum  wage  than  to  a 
legal  eight  hour  day,  or  legal  regulations  of  safety  and 
sanitation  in  work  places.  All  three  of  these  measures 
tend  to  increase  the  cost  of  production,  and  sometimes 
carry  the  tendency  into  reality.  A  minimum  wage  law  is 
difficult  to  enforce,  but  not  much  more  so  than  most  other 
labour  regulations.  At  any  rate,  the  practical  considera- 
tion is  whether  even  a  partial  enforcement  of  it  will  not 
result  in  a  marked  benefit  to  great  numbers  of  underpaid 
workers.  It  may  throw  some  persons,  the  slower  workers, 
out  of  employment;  but  here,  again,  the  important  ques- 
tion relates  to  the  balance  of  good  over  evil  for  the  ma- 
jority of  those  who  are  below  the  level  of  decent  living. 
At  every  point,  therefore,  the  problem  is  one  of  concrete 
expediency,  not  of  agreement  or  disagreement  with  a  real 
or  imaginary  economic  law. 

Some  of  those  who  oppose  the  device  on  the  ground  of 
expediency  set  up  an  argument  which  runs  about  as  fol- 
lows: the  increase  in  wages  caused  by  a  minimum  wage 
law  will  be  shifted  to  the  consumer  in  the  form  of  higher 
prices;  this  result  will  in  turn  lead  to  a  falling  off  in  the 


METHODS   OF   INCREASING   WAGES  409 

demand  for  products ;  a  lessened  demand  for  goods  means 
a  reduced  demand  for  labour ;  and  this  implies  a  diminished 
volume  of  employment,  so  that  the  last  state  of  the  workers 
becomes  worse  than  the  first.  Not  only  is  this  conception 
too  simple,  but  it  proves  too  much.  If  it  were  correct 
every  rise  in  wages,  howsoever  brought  about,  would  be 
ill  advised;  for  every  rise  would  set  in  motion  the  same 
fatal  chain  of  events.  Voluntary  increases  of  remunera- 
tion by  employers  would  be  quite  as  futile  as  the  efforts 
of  a  labour  union.  This  is  Httle  more  than  the  old  wages 
fund  theory  in  a  new  dress.  And  it  is  no  less  contrary  to 
experience. 

The  argument  is  too  simple  because  it  is  based  upon  an 
insufficient  analysis  of  the  facts.  There  are  no  less  than 
four  sources  from  which  the  increased  wages  required  by 
a  minimum  wage  law  might  in  whole  or  in  part  be  ob- 
tained. In  the  first  place,  higher  wages  will  often  give 
the  workers  both  the  physical  capacity  and  the  spirit  that 
make  possible  a  larger  output.  Thus,  they  could  them- 
selves equivalently  provide  a  part  at  least  of  their  addi- 
tional remuneration.  When,  secondly,  the  employer  finds 
that  labour  is  no  longer  so  cheap  that  it  can  be  profitably 
used  as  a  substitute  for  intelligent  management,  better 
methods  of  production,  and  up  to  date  machinery,  he  will 
be  compelled  to  introduce  one  or  more  of  these  improve- 
ments, and  to  offset  increased  labour  cost  by  increased 
managerial  and  mechanical  efficiency.  This  is  what  seems 
to  have  happened  in  the  tailoring  industry  of  England. 
According  to  Mr.  Tawney,  "  the  increased  costs  of  pro- 
duction have,  on  the  whole,  been  met  by  better  organisa- 
tion of  work  and  by  better  machinery."  ^  In  the  third 
place,  a  part  of  the  increased  wage  cost  can  be  defrayed 
out  of  profits,  in  two  ways:  through  a  reduction  in  the 
profits  of  the  majority  of  business  concerns  in  an  industry; 
but  more  frequently  through  the  elimination  of  the  less 

1 "  Minimum  Rates  in  the  Tailoring  Industry,"  p.  161. 


4IO  DISTRIBUTIVE   JUSTICE 

efficient,  and  the  consequent  increase  in  the  volume  of 
business  done  by  the  more  efficient.  In  the  latter  estab- 
lishments the  additional  outlay  for  wages  might  be  fully 
neutralised  by  the  diminished  managerial  expenses  and 
fixed  charges  per  unit  of  product.  This  elimination  of 
unfit  undertakers  would  not  only  be  in  the  direction  of 
greater  social  efficiency,  but  in  the  interest  of  better  em- 
ployment conditions  generally ;  for  it  is  the  less  competent 
employers  who  are  mainly  responsible  for  the  evil  of 
"  sweating,"  when  they  strive  to  reduce  the  cost  of  pro- 
duction by  the  only  method  that  they  know;  that  is,  the 
oppression  of  labour.  Should  the  three  foregoing  factors 
fall  short  of  providing  or  neutralising  the  increased  wages, 
the  recourse  would  necessarily  be  to  the  fourth  source; 
namely,  a  rise  in  the  price  of  products.  However,  there 
is  no  definite  reason  for  assuming  that  the  rise  will  in  any 
case  be  sufficient  to  cause  a  net  decrease  of  demand.  In 
Oregon  the  increased  labour  cost  due  to  the  minimum 
wage  law  amounted,  as  we  have  seen,  to  only  three  mills 
per  dollar  of  sales  in  mercantile  establishments.  Even  if 
this  were  all  shifted  to  the  consumer  —  something  that  is 
practically  impossible  —  it  would  be  equivalent  to  an  in- 
crease of  only  three  cents  on  each  ten  dollars'  worth  of 
purchases,  and  thirty  cents  on  each  hundred.  The  reduc- 
tion in  sales  on  account  of  such  a  slight  rise  in  prices  would 
be  infinitesimal.  In  the  case  of  possibly  the  majority  of 
products,  the  lessened  demand  on  the  part  of  the  other 
classes  might  be  entirely  counterbalanced  by  the  increased 
demand  at  the  hands  of  the  workers  whose  purchasing 
power  had  been  raised  through  the  minimum  wage  law. 
The  effect  upon  sales,  and  hence  upon  business  and  pro- 
duction, which  follows  from  an  increase  in  the  effective 
consuming  power  of  the  labouring  classes  is  frequently 
ignored  or  underestimated.  So  far  as  consumers'  goods 
are  concerned,  it  seems  certain  that  a  given  addition  to  the 
income  of  the  wage-earning  classes  will  lead  to  a  greater 


METHODS   OF   INCREASING   WAGES  4 II 

increase  in  the  demand  for  products  than  an  equal  addition 
to  the  income  of  any  other  section  of  the  people. 

Nevertheless,  the  possibility  must  be  admitted  of  some 
diminution  of  employment,  owing  to  higher  prices  and 
decreased  demand.  And  it  is  certain  that  some  workers 
would  not  be  worth  the  legal  minimum  to  their  employers. 
A  part,  but  probably  not  all,  of  these  could  find  employ- 
ment at  a  lower  wage,  through  a  system  of  permits  for 
"  slow  workers."  Whatever  the  amount  of  unemploy- 
ment resulting  from  both  these  causes,  it  would  undoubt- 
edly be  an  evil  of  lesser  magnitude  than  that  which  at 
present  follows  from  the  under-payment  of  a  majority  of 
the  labouring  population.  And  it  could  be  remedied  by 
two  measures  which  are  in  any  case  necessary  for  social 
welfare,  and  which  would  be  hastened  by  the  establish- 
ment of  a  legal  minimum  wage.  These  are  adequate  and 
scientific  laws  and  institutions  to  deal  with  the  general 
problem  of  unemployment,  and  a  comprehensive  system  of 
industrial  and  vocational  training. 

These  conclusions,  then,  seem  to  be  justified:  the  eco- 
nomic objections  to  a  legal  minimum  wage  are  not  essen- 
tially different  from  those  that  may  be  urged  against  any 
other  beneficial  labour  legislation;  and  they  have  been 
sufficiently  refuted  by  experience  to  throw  the  burden  of 
proof  upon  the  objectors.  Expediency  suggests,  however, 
that  in  the  United  States  the  device  should  be  applied 
gradually  in  two  respects:  for  a  few  years  it  ought  to  be 
confineci  to  women  and  minors;  and  when  it  is  extended 
to  men,  the  rates  should  approach  the  level  of  a  complete 
family  living  wage  by  stages,  covering,  say,  three  or  four 
years.  The  former  restriction  would  enable  the  law  to  be 
carried  through  its  experimental  stages  with  a  minimum 
disturbance  to  industry  as  a  whole,  and  with  a  minimum 
of  opposition,  and  the  latter  would  greatly  reduce  the 
danger  of  male  unemployment.^ 

1  One  of  the  best  statements  of  the  economic  aspect  of  the  minimum 


412  DISTRIBUTIVE   JUSTICE 

Opinions  of  Economists 

When  the  present  writer  made  an  argument  for  the 
legal  minimum  wage  something  more  than  ten  years  ago, 
he  was  able  to  find  only  one  American  economist  who  had 
touched  the  subject,  and  the  verdict  of  that  one  was  unfa- 
vourable.^ A  little  over  a  year  ago,  Dr.  John  O'Grady  sent 
an  inquiry  to  one  hundred  and  sixty  economists  of  the 
United  States  to  ascertain  their  opinions  on  the  same  sub- 
ject. Of  the  ninety-four  who  replied  seventy  were  in 
favour  of  a  minimum  wage  law  for  women  and  minors, 
thirteen  were  opposed,  and  eleven  were  noncommittal; 
fifty-five  favoured  such  legislation  for  men,  twenty  were 
against  it,  and  nineteen  were  disinclined  to  give  a  cate- 
gorical answer.  About  three-fourths  of  those  who 
responded  expressed  the  opinion  that  the  measure  would 
tend  to  increase  the  efficiency  both  of  the  workers  and  of 
methods  of  production.^ 

It  is  worthy  of  note  that  the  nine  members  of  the  late 
Federal  Commission  on  Industrial  Relations,  although  dis- 
agreeing widely  and  variously  on  most  other  important 
questions  and  proposals,  were  all  favourable  to  a  minimum 
wage  law  for  women  and  minors.^ 

The  most  comprehensive  and  most  searching  criticism 
of  the  legal  minimum  wage  from  the  viewpoint  of  eco- 
nomic theory  has  been  made  by  Professor  F.  W.  Taussig.* 
While  he  does  not  commit  himself  definitely  to  the  asser- 

wage  is  that  by  Sidney  Webb,  in  the  Journal  of  Political  Economy, 
Dec,  1912.  Probably  the  most  varied  and  comprehensive  general  dis- 
cussion is  the  symposium  in  the  Survey,  Feb.  6,  1915.  See  especially 
the  excellent  presentation  in  Commons  and  Andrews'  "  Principles  of 
Labour  Legislation,"  pp.  167-200. 

1  See* pages  303,  304  of  "A  Living  Wage";  Macmillan,  1906. 

2  O'Grady,  "A  Legal  Minimum  Wage";  Washington,  1915. 
8  "Final  Report,"  pp.  101,  255,  364. 

4  The  Quarterly  Journal  of  Economics,  May,  1916.  A  somewhat  less 
•unfavourable  criticism  is  contained  in  the  paper  by  Professor  John 
Bates  Clark  in  the  Atlantic  Monthly,  September,  1913. 


METHODS   OF   INCREASING   WAGES  413 

tion  that  a  universal  minimum  wage  of,  say,  eight  dollars 
per  week,  would  cause  a  notable  amount  of  unemployment 
among  women,  he  regards  this  consequence  as  sufificiently 
probable  to  indicate  the  "  need  of  going  slow  in  the  regula- 
tion of  women's  wages."  Specifically,  he  would  have 
public  wage  boards  refrain  from  fixing  the  minimum  rates 
high  enough  to  maintain  women  living  away  from  home. 
His  final  and  only  serious  argument  for  this  position  re- 
lates to  the  marginal  effectiveness  of  women  workers.  He 
assumes  that  all  "  the  fitful,  untrained,  indifferent  women 
are  got  rid  of;  that  all  who  offer  themselves  for  work  at 
the  age  of  (say)  eighteen  years  have  had  an  industrially 
helpful  education, — "  and  then  raises  the  question  whether 
all  of  them  will  be  "  able  to  get  distinctly  higher  wages 
than  are  now  current."  ^  Obviously  the  question  is  not 
serious  unless  it  contemplates  the  probability  of  unemploy- 
ment for  a  considerable  proportion.  If  only  one  per  cent, 
or  less  of  the  women  should  be  unable  to  find  employment 
at  the  higher  wages,  the  net  social  advantage  of  the  mini- 
mum wage  device  would  be  so  obvious  as  to  render  Pro- 
fessor Taussig's  opposition  quite  unreasonable.  Making 
the  assumptions  quoted  above  from  his  pages,  let  us  try  to 
see  whether  his  apprehensions  are  economically  justifiable. 

If  they  are  reasonable  or  probable  they  must  rest  on 
one  of  two  fundamental  conditions :  the  occupations  avail- 
able to  women  are  too  few  to  absorb  all  that  would  seek 
to  become  wage  earners  at  eight  dollars  per  week;  or  a 
considerable  section  of  them  would  be  unable  to  produce 
such  a  high  wage.  Possibly  the  first  of  these  assumptions 
is  true,  but  neither  Professor  Taussig  nor  any  other 
authority  has  presented  evidence  to  support  it,  and  it  is  on 
the  face  of  things  not  sufficiently  probable  to  justify  hesi- 
tation in  the  advocacy  of  a  minimum  living  wage.  If  the 
second  assumption  be  correct,  if  the  product  of  a  con- 
siderable section  of  women  (all  adequately  trained)  would 

1  Page  436. 


414  DISTRIBUTIVE  JUSTICE 

be  insufficient  to  yield  them  eight  dollars  per  week,  in  addi- 
tion to  the  other  costs  of  production,  the  conclusion  is 
inevitable  that  the  same  result  would  follow  the  attempt 
to  pay  all  male  adults  (likewise  adequately  trained)  a 
family  living  wage  of,  say,  fifteen  dollars  per  week.  For 
the  product  of  the  average  man  does  not  exceed  that  of 
the  average  woman  by  even  as  great  a  ratio  as  fifteen  to 
eight.  If  the  average  woman  is  not  worth  eight  dollars  a 
week  to  an  employer  in  any  kind  of  woman's  occupation, 
the  average  man  is  not  worth  fifteen  dollars.  Therefore, 
we  cannot  hope,  even  with  the  aid  of  a  thorough  system 
of  industrial  and  vocational  training,  to  provide  all  adult 
males  of  average  capacity  with  a  family  living  wage  and 
the  minimum  means  of  living  a  reasonable  life. 

This  is  a  veritable  counsel  of  despair.  It  implies  either 
that  the  law  of  diminishing  returns  is  already  operating  in 
this  country  in  such  a  way  as  to  prevent  the  national 
product  from  being  sufficiently  large  to  provide  a  mini- 
mum wage  of  fifteen  dollars  a  week  for  men,  and  eight 
dollars  a  week  for  women;  or  that  the  product,  though 
ample  for  this  purpose,  and  for  all  the  other  necessary  pay- 
ments to  the  higher  priced  workers  and  to  the  other  agents 
of  production,  cannot  under  our  present  industrial  system 
be  so  distributed  as  to  attain  the  desired  end.  For  the 
first  of  these  hypotheses  there  is  no  evidence  worthy  of 
the  name.  If  Professor  King  is  right  in  his  estimate  of 
an  average  family  income  of  1494  dollars  annually  ^  the 
difficulty  before  us  does  not  lie  in  the  field  of  production. 
Professor  Taussig  seems  to  rest  his  fears  on  the  second 
hypothesis,  on  the  assumed  impossibility  of  bringing  about 
the  required  distribution;  for  he  points  out  that  increased 
efficiency  of  the  workers  may,  like  increased  efficiency  of 
the  material  instrumentalities  of  production,  in  the  long 
run  redound  mainly  to  the  benefit  of  the  consumers,  while 

1 "  The  Wealth  and  Income  of  the  People  of  the  United  States,"  p. 
129. 


METHODS   OF   INCREASING   WAGES  415 

wages  may  be  little  if  any  above  the  old  level.  If  these 
fears  are  justified,  if  the  difficulty  is  entirely  one  of  the 
mechanism  of  distribution,  and  if  it  cannot  be  overcome 
by  legal  enactment,  then  is  our  competitive  organisation  of 
industry  bankrupt,  and  the  sooner  we  find  out  that  fact 
definitely  the  better.  If  the  legal  minimum  wage  will  help 
to  expose  such  a  situation,  will  show  that,  no  matter  how 
much  the  productivity  of  the  workers  may  be  increased,  a 
large  proportion  of  them  must  by  the  very  nature  of  the 
competitive  system  be  forever  condemned  to  live  below  the 
level  of  decent  existence,  then  the  minimum  wage  is  worth 
having  merely  as  an  instrument  of  economic  enlightenment. 
Professor  Taussig's  argument  and  illustrations  ^  seem 
to  contemplate  a  condition  in  which  the  number  of  women 
who  become  fitted  for  a  certain  trade  is  excessive  rela- 
tively to  the  demand  for  its  products,  and  to  the  supply  of 
women  in  other  industries.  Were  industrial  training  thus 
misdirected,  and  were  the  trained  persons  unable  or  un- 
willing to  distribute  themselves  over  other  occupations, 
they  would,  indeed,  face  precisely  the  same  dilemma  as  do 
the  unskilled  workers  to-day.  That  is;  a  majority  would 
be  condemned  to  insufficient  wages,  or  a  minority  to  un- 
employment. But  we  have  been  assuming  an  adequate 
system  of  industrial  and  vocational  training,  a  well- 
balanced  system,  one  that  would  enable  the  workers  to 
adjust  their  supply  to  the  demand  throughout  the  various 
occupations.  In  these  conditions  the  economic  axiom  that 
a  supply  of  goods  is  a  demand  for  goods  should  become 
beneficently  effective :  the  workers  should  all  be  able  to 
find  employment,  and  to  obtain  the  greater  part  of  their 
increased  product.  Surely  Professor  Taussig  does  not 
mean  to  commit  himself  to  the  view  that  every  increase 
in  the  productive  power  of  the  workers  will  in  the  long 
run  help  them  only  inasmuch  as  they  are  consumers,  the 
lion's  share  of  the  additional  product  being  taken  by  other 

1  Page  437. 


4l6  DISTRIBUTIVE   JUSTICE 

classes.  Probably  such  is  the  usual  result  in  a  regime  of 
unregulated  competition,  and  unlimited  freedom  as  regards 
the  wage  contract.  But  this  is  precisely  what  we  expect  a 
minimum  wage  law  to  correct  and  prevent.  We  rely  upon 
this  device  to  enable  the  workers  to  retain  for  themselves 
that  share  of  the  product  which  under  free  competition 
would  automatically  go  to  the  non-labouring  consumers. 
We  hope  that  blind  and  destructive  economic  force  can  be 
held  in  check  by  deliberate  and  beneficent  social  control. 
The  fact  of  the  matter  seems  to  be  that  Professor  Taus- 
sig's argument  is  too  hypothetical  and  conjectural  to 
justify  his  pessimistic  conclusions.  It  is  unpleasantly  sug- 
gestive of  the  reasoning  by  which  the  classical  economists 
tried  to  show  the  English  labourers  the  folly  and  futility 
of  trade  unionism. 

Other  Legislative  Proposals 

The  ideal  standard  of  a  minimum  wage  law  is  a  scale 
of  remuneration  adequate  not  only  to  the  present  needs  of 
individuals  and  families,  but  to  savings  for  the  contin- 
gencies of  the  future.  Until  such  time  as  the  compensa- 
tion of  all  labourers  has  been  brought  up  to  this  level,  the 
State  should  make  provision  for  cheap  housing,  and  for 
insurance  against  accidents,  sickness,  invalidity,  old  age, 
and  unemployment.  The  theory  underlying  such  meas- 
ures is  that  they  would  merely  supplement  insufficient 
remuneration,  and  indirectly  contribute  to  the  establish- 
ment of  genuine  living  wages.  In  Europe,  housing  and 
insurance  legislation  is  so  common  that  no  reasonable  and 
intelligent  person  any  longer  questions  the  competency  or 
propriety  of  such  action  by  the  State. 

If  an  adequate  legal  minimum  wage,  in  the  sense  just 
defined,  were  universally  established,  the  State  would  not 
be  required  to  do  anything  further  to  effectuate  wage 
justice,  except  in  the  matter  of  vocational  and  industrial 
education.     This  would  qualify  practically  all  persons  to 


METHODS   OF   INCREASING   WAGES  417 

earn  at  least  a  living  wage,  and  would  enable  those  who 
underwent  unusual  sacrifices  either  before  or  during  their 
employment  to  command  something  over  and  above.  In 
other  words,  all  workers  would  then  be  able  to  obtain  what 
we  have  called  "the  equitable  minimum."  And  the 
labouring  class  as  a  whole  would  possess  sufficient  eco- 
nomic power  to  secure  substantially  all  that  was  due  by  any 
of  the  canons  of  distributive  justice. 

Labour  Unions 

The  general  benefits  and  achievements  of  labour  organi- 
sations in  the  United  States  down  to  the  beginning  of  the 
present  century,  cannot  be  more  succinctly  nor  more  au- 
thoritatively stated  than  in  the  words  of  the  United  States 
Industrial  Commission :  "  An  overwhelming  preponder- 
ance of  testimony  before  the  Industrial  Commission  indi- 
cates that  the  organisation  of  labour  has  resulted  in  a 
marked  improvement  in  the  economic  condition  of  the 
workers."  ^  Some  of  the  most  conspicuous  and  unques- 
tionable proofs  of  rises  in  wages  effected  by  the  unions 
are  afforded  by  the  building  trades,  the  printing  trades,  the 
coal  mining  industry,  and  the  more  skilled  occupations  on 
the  railroads.  Between  1890  and  1907  wages  increased 
considerably  more  in  the  organised  than  in  the  unorgan- 
ised trades.^ 

Nevertheless,  when  all  due  credit  is  given  to  the  unions 
for  their  part  in  augmenting  the  share  of  the  product  re- 
ceived by  labour,  there  remain  two  important  obstacles 
which  seriously  lessen  their  efficacy  as  a  means  of  raising 
the  wages  of  the  underpaid. 

The  first  is  the  fact  that  the  unions  still  embrace  only  a 
small  portion  of  the  total  number  of  wage  earners.  Ac- 
cording to  Professor  Leo  Wolman,  a  little  more  than 

1"  Final  Report,"  p.  802.    Washington,  1902. 

2  See  article  by  Professor  Commons  in  "The  New  Encyclopedia  of 
Social  Reform,"  p.  1233. 


41 8  DISTRIBUTIVE  JUSTICE 

twenty-seven  million  of  the  thirty-eight  million  persons  en- 
gaged in  "  gainful  occupations  "  in  the  United  States  in 
1910  were  wage  earners  in  the  ordinary  sense  of  that 
phrase,  and  of  these  twenty-seven  million  only  2,116,317, 
or  y.y  per  cent.,  were  members  of  labour  organisations.^ 
The  membership  to-day  is  about  two  and  three  quarter 
millions.  If  the  total  number  of  wage  earners  increased 
between  19 10  and  19 16  at  the  same  rate  as  during  the 
preceding  decade,  the  organised  portion  is  now  somewhat 
less  than  y.y  per  cent,  of  the  whole.  Evidently  the  la- 
bour unions  have  not  grown  with  sufficient  rapidity,  nor 
are  they  sufficiently  powerful  to  warrant  the  hope  that 
they  will  be  soon  able  to  lift  even  a  majority  of  the  under- 
paid workers  to  the  level  of  living  wage  conditions. 

The  second  obstacle  is  the  fact  that  only  a  small  minor- 
ity of  the  members  of  labour  unions  are  drawn  from  the 
unskilled  and  underpaid  classes,  who  stand  most  in  need  of 
organisation.  The  per  cent,  of  those  getting  less  than 
living  wages  that  is  in  the  unions  is  almost  negligible. 
With  the  exception  of  a  few  industries,  the  unskilled  and 
the  underpaid  show  very  little  tendency  to  increase  notably 
their  organised  proportion.  The  fundamental  reason  of 
this  condition  has  been  well  stated  by  John  A.  Hobson : 
"  The  great  problem  of  poverty  .  .  .  resides  in  the  con- 
ditions of  the  low-skilled  workman.  To  live  industrially 
under  the  new  order  he  must  organise.  He  cannot  or- 
ganise because  he  is  so  poor,  so  ignorant,  so  weak.  Be- 
cause he  is  not  organised  he  continues  to  be  poor,  ignorant, 
weak.  Here  is  a  great  dilemma,  of  which  whoever  shall 
have  found  the  key  will  have  done  much  to  solve  the 
problem  of  poverty."  ^ 

The  most  effective  and  expeditious  method  of  raising 
the  wages  of  the  underpaid  through  organisation  is  by 
means   of   the   "  industrial,"   as   distinguished    from   the 

1  The  Quarterly  Journal  of  Economics,  May,  1916,  p.  502. 

2  "  Problems  of  Poverty,"  p.  227.    London,  1891. 


METHODS   OF   INCREASING   WAGES  419 

"  trade,"  or  "  craft,"  union.  In  the  former  all  the  trades 
of  a  given  industry  are  united  in  one  compact  organisa- 
tion, while  the  latter  includes  only  those  who  work  at  a 
certain  trade  or  occupation.  For  example :  the  United 
Mine  Workers  embrace  all  persons  employed  in  coal  mines, 
from  the  most  highly  skilled  to  the  lowest  grade  of  unspe- 
cialised  labour;  while  the  craft  union  is  exemplified  in  the 
engineers,  firemen,  conductors,  switchmen,  and  other 
groups  having  their  separate  organisations  in  the  railroad 
industry.  The  industrial  union  is  as  much  concerned  with 
the  welfare  of  its  unskilled  as  of  its  skilled  members,  and 
exerts  the  whole  of  its  organised  force  on  behalf  of  each 
and  every  group  of  workers  throughout  the  industry  which 
it  covers.  The  superior  suitability  of  the  industrial  type 
of  union  to  the  needs  of  the  unskilled  labourers  is  seen  in 
the  fact  that  more  of  them  are  organised  in  the  coal  min- 
ing than  in  any  other  industry,  and  have  received  greater 
benefits  from  organisation  than  their  unskilled  fellow 
workers  in  any  other  industry.  Were  the  various  classes 
of  railway  employes  combined  in  one  union,  instead  of 
being  organised  along  the  lines  of  their  separate  crafts,  it 
is  quite  improbable  that  the  unskilled  majority  would  be 
getting,  as  they  now  are  getting,  less  than  living  wages. 
While  it  is  true  that  the  various  craft  unions  in  an  indus- 
try are  often  federated  into  a  comprehensive  association, 
the  bond  uniting  them  is  not  nearly  so  close,  nor  so  help- 
ful to  the  weaker  groups  of  workers  as  in  the  case  of  the 
industrial  unions. 

Human  nature  being  what  it  is,  however,  the  members 
of  the  skilled  crafts  cannot  all  be  induced  or  compelled 
to  adopt  the  industrial  type  of  organisation.  The  Knights 
of  Labour  attempted  to  accomplish  this,  and  for  a  time 
enjoyed  a  considerable  measure  of  success,  but  in  the  end 
the  organisation  was  unable  to  withstand  those  funda- 
mental inclinations  which  impel  men  to  prefer  the  more 
narrow,  homogeneous,  and  exclusive  type  of  association. 


420  DISTRIBUTIVE   JUSTICE 

The  skilled  workers  refused  to  merge  their  local  and  craft 
interests  in  the  wider  interests  of  men  with  whom  they 
had  no  strong  nor  immediate  bonds  of  sympathy.  Among 
labourers,  as  well  as  among  other  persons,  the  capacity  for 
altruism  is  limited  by  distance  in  space  and  occupational 
condition.  The  passion  for  distinction  likewise  affects 
the  wage  earner,  impelling  the  higher  groups  consciously 
or  unconsciously  to  oppose  association  that  tends  to  break 
down  the  barrier  of  superiority.  Owing  to  their  greater 
resources  and  greater  scarcity,  the  skilled  members  of  an 
industrial  union  are  less  dependent  upon  the  assistance  of 
the  unskilled  than  the  latter  are  dependent  upon  the 
former ;  yet  the  skilled  membership  is  always  in  a  minority, 
and  therefore  in  danger  of  being  subordinated  to  the  in- 
terests of  the  unskilled  majority. 

For  these  and  many  other  reasons  it  is  quite  improbable 
that  the  majority  of  union  labourers  can  ht  amalgamated 
into  industrial  unions  in  the  near  future.  The  most  that 
can  be  expected  is  that  the  various  occupational  unions 
within  each  industry  should  become  federated  in  a  more 
compact  and  effective  way  than  now  prevails,  thus  con- 
serving the  main  advantages  of  the  local  and  craft  asso- 
ciation, while  assuring  to  the  unskilled  workers  some  of 
the  benefits  of  the  industrial  union. 

Organisation  Versus  Legislation 

In  the  opinion  of  some  labour  leaders,  the  underpaid 
workers  should  place  their  entire  reliance  upon  organisa- 
tion. The  arguments  for  this  position  are  mainly  based 
upon  three  contentions :  it  is  better  that  men  should  do 
things  for  themselves  than  to  call  in  the  intervention  of 
the  State;  if  the  workers  secure  living  wages  by  law  they 
will  be  less  likely  to  organise,  or  to  remain  efficiently  or- 
ganised; and  if  the  State  fixes  a  mimimum  wage  it  may 
some  day  decide  to  fix  a  maximum. 

Within  certain  limits  the  first  of  these  propositions  is 


METHODS   OF   INCREASING   WAGES  42 1 

incontestable.  The  self  education,  self  reliance,  and  other 
experiences  obtained  by  the  workers  through  an  organised 
struggle  for  improvements  oi  any  kind,  are  too  valuable 
to  be  lightly  passed  over  for  the  sake  of  the  easier  method 
of  State  assistance.  Indeed,  it  would  be  better  to  accept 
somewhat  less,  or  to  wait  somewhat  longer,  in  order 
that  the  advantages  might  be  secured  through  organisa- 
tion. However,  these  hypotheses  are  not  verified  as  re- 
gards the  minimum  wage  problem.  The  legal  method 
promises  with  a  high  degree  of  probability  to  bring  about 
universal  living  wages  within  ten  or  fifteen  years.  The 
champions  of  organisation  can  point  to  no  solid  reasons 
for  indulging  the  hope  that  their  method  would  achieve 
the  same  result  within  a  half  a  century.  Therefore,  the 
advantages  of  the  device  of  organisation  are  much  more 
than  neutralised  by  its  disadvantages. 

The  fear  that  the  devotion  of  the  workers  to  the  union 
would  decline  as  soon  as  living  wages  had  been  secured  by 
law,  seems  to  have  no  adequate  basis  either  in  experience 
or  in  probability.  Speaking  of  the  establishment  of  mini- 
mum wages  in  the  tailoring  industry  of  Great  Britain, 
Mr.  Tawney  declares  that  it  "  has  given  an  impetus  to 
trade  unionism  among  both  men  and  women.  The  mem- 
bership of  the  societies  connected  with  the  tailoring  trade 
has  increased,  and  in  several  districts  the  trade  unions  have 
secured  agreements  fixing  the  standard  rate  considerably 
above  the  minimum  contained  in  the  Trade  Board's  de- 
termination." ^  Similar  testimony  comes  from  Austral- 
asia. Indeed,  this  is  precisely  what  we  should  be  in- 
clined to  expect;  for  the  workers  whose  wages  had  been 
raised  would  for  the  first  time  possess  the  money  and  the 
courage  to  support  unions;  and  would  have  sufficient  in- 
centives thereto  in  the  natural  desire  to  obtain  something 
more  than  the  legal  minimum,  and  in  the  realisation  that 
organisation  was  necessary  to  give  them  a  voice  in  the 

1 "  Minimum  Rates  in  the  Tailoring  Industry,"  p.  96. 


422  DISTRIBUTIVE   JUSTICE 

determination  of  the  minimum,  and  to  enable  them  to  co- 
operate in  compelHng  its  enforcement.  Indeed,  general 
experience  shows  that  organisation  becomes  normally  ef- 
ficient and  produces  its  best  results  only  among  workers 
who  have  already  approximated  the  level  of  living  wages. 
To  be  sure,  the  State  could  set  up  maximum  instead  of 
minimum  wages, —  if  the  employing  classes  were  suffi- 
ciently powerful.  But  all  indications  point  to  a  decline 
rather  than  an  increase  in  their  political  influence,  and  to  a 
corresponding  expansion  in  the  governmental  influence  of 
the  labouring  classes  and  their  sympathisers.  Moreover, 
the  labour  leaders  who  urge  this  objection  are  inconsist- 
ent, inasmuch  as  they  advocate  other  beneficial  labour 
legislation.  The  distinction  which  they  profess  to  find 
between  laws  that  merely  remove  unfair  legal  and  judicial 
disabilities  and  laws  that  reduce  the  length  of  the  working 
day  or  fix  minimum  wages,  has  no  importance  in  practical 
politics  or  in  the  mind  of  the  average  legislature.  If  the 
political  influence  of  labour  should  ever  become  so  weak 
and  that  of  capital  so  strong  as  to  make  restrictive  labour 
legislation  generally  feasible,  legislators  would  not  confine 
their  unfriendly  action  to  the  field  of  positive  measures. 
They  would  be  quite  as  ready  to  pass  a  law  prohibiting 
strikes  as  to  enact  a  statute  fixing  maximum  wages.  The 
formal  legalisation  of  strikes,  picketing,  and  the  primary 
boycott  which  is  contained  in  the  Clayton  Act,  and  for 
which  the  labour  unions  worked  long  and  patiently,  could 
conceivably  be  seized  upon  by  some  future  unfriendly 
Congress  as  a  precedent  and  provocation  for  legislation 
which  would  not  only  repeal  all  the  favourable  provisions 
of  the  Clayton  Act,  but  subject  labour  to  entirely  new  and 
far  more  odious  restraints  and  interferences.  The  fact 
that  governments  passed  maximum  wage  laws  in  the  past 
is  utterly  irrelevant  to  the  question  of  wage  legislation 
to-day.  A  legal  minimum  wage,  and  a  multitude  of  other 
protective  labour  laws  are  desirable  and  wise  in  the  twen- 


METHODS   OF  INCREASING  WAGES  423 

tieth  century  for  the  simple  reason  that  labour  and  the 
friends  of  labour  are  sufficiently  powerful  to  utilise  this 
method,  and  because  their  influence  seems  destined  to  in- 
crease rather  than  decrease.  The  contrary  hypothesis  is 
too  improbable  for  serious  consideration. 

The  conclusions  that  seem  justified  by  a  comprehensive 
and  critical  view  of  all  the  facts  of  the  situation,  are  that 
organisation  is  not  of  itself  an  adequate  means  of  bringing 
about  living  wages  for  the  underpaid,  but  that  it  ought 
nevertheless  to  be  promoted  and  extended  among  these 
classes,  not  only  for  its  direct  effect  upon  wages,  but  for 
its  bearing  upon  legislation.  The  method  of  organisa- 
tion and  the  method  of  legislation  are  not  only  not  mutu- 
ally opposed,  but  are  in  a  very  natural  and  practical  man- 
ner complementary. 

Participation  in  Capital  Ownership 

While  those  workers  whose  remuneration  is  below  the 
level  of  decent  maintenance  are  not  ordinarily  in  a  posi- 
tion to  become  owners  of  any  kind  of  capital,  many  of 
them,  especially  among  the  unmarried  men,  can  accumu- 
late savings  by  making  large  sacrifices.  As  a  matter  of 
fact,  hundreds  of  thousands  of  the  underpaid  have  be- 
come interest  receivers  through  the  medium  of  savings 
banks,  real  estate  possessions,  and  insurance  policies. 
Every  effort  in  this  direction  is  distinctly  worth  while, 
and  deserving  of  encouragement.  Labourers  who  are 
above  the  minimum  wage  level  can,  of  course,  save  much 
larger  amounts,  and  with  less  sacrifices  than  the  under- 
paid classes.  In  all  cases  the  main  desideratum  is  that  the 
workers  should  derive  some  income  from  capital ;  but  it  is 
almost  equally  important  that  their  capital  ownership 
should  wherever  possible  take  the  form  of  shares  in  the 
industry  in  which  they  are  employed,  or  the  store  at  which 
they  buy  their  goods.  This  means  co-operative  produc- 
tion and  co-operative  distribution.     The  general  benefits 


424  DISTRIBUTIVE   JUSTICE 

of  the  co-operative  enterprise  have  already  been  described 
in  chapter  xiv.  For  the  wage  earner  proprietorship  in  a 
co-operative  concern  is  preferable  to  any  other  kind  of 
capital  ownership  because  of  the  training  that  it  affords 
in  business  management  and  responsibility,  in  industrial 
democracy,  and  in  the  capacity  to  subordinate  his  immedi- 
ate and  selfish  interests  to  his  more  remote  and  larger 
welfare. 

Co-operative  ownership  of  the  tools  with  which  men 
work  has  advantages  of  its  own  over  co-operative  owner- 
ship of  the  stores  from  which  they  made  their  purchases, 
inasmuch  as  it  increases  their  control  over  the  conditions 
of  employment,  and  gives  them  incentives  to  efficiency 
which  results  in  a  larger  social  product  and  a  larger  share 
thereof  for  themselves.  As  already  pointed  out  in  chap- 
ter xiv,  the  ideal  type  of  productive  co-operation  is  that 
known  as  the  "  perfect "  form,  in  which  the  workers  are 
the  exclusive  owners  of  the  concern  where  they  exercise 
their  labour.  Nevertheless,  the  "  federal "  type,  in  which 
the  productive  concern  is  directly  owned  by  a  wholesale 
co-operative,  indirectly  by  the  retail  co-operative  store,  and 
ultimately  by  the  co-operative  consumers, —  presents  one 
important  advantage.  It  could  be  so  modified  as  to  enable 
the  employes  of  the  productive  enterprise  to  share  the 
ownership  of  the  latter  with  the  wholesale  establishment. 
Such  an  arrangement  would  at  once  give  the  workers  the 
benefits  of  productive  co-operation  mentioned  above,  and 
render  probable  a  satisfactory  adjustment  of  the  conflict- 
ing claims  of  producers  and  consumers.  As  intimated  in 
chapter  xxiv,  such  a  conflict  is  inherent  in  every  system 
of  industrial  organisation,  and  will  become  more  evident 
and  more  acute  in  proportion  to  the  strengthening  of  the 
position  of  labour. 

A  final  reason  for  ownership  of  capital  by  labour  de- 
serves mention  here,  even  though  it  has  no  immediate  bear- 
ing upon  the  question  of  remuneration.     Were  all  la- 


METHODS   OF   INCREASING   WAGES  425 

bourers  receiving  the  full  measure  of  wages  to  which  they 
are  entitled  by  the  canons  of  distributive  justice,  it  would 
still  be  highly  desirable  that  the  majority  if  not  all  of 
them  should  possess  some  capital,  preferably  in  the  pro- 
ductive and  distributive  concerns  in  which  they  were  im- 
mediately interested.  It  does  not  seem  probable  that  our 
economic  system  as  now  constituted,  with  the  capital 
owners  and  the  capital  operators  for  the  most  part  in  two 
distinct  classes,  will  be  the  final  form  of  industrial  organi- 
sation. Particularly  does  this  arrangement  seem  unde- 
sirable, incongruous,  and  unstable  in  a  society  whose  po- 
litical form  is  that  of  democracy.  Ultimately  the  workers 
must  become  not  merely  wage  earners  but  capitalists. 
Any  other  system  will  always  contain  and  develop  the 
seeds  of  social  discontent  and  social  disorder. 

REFERENCES  ON  SECTION  IV 

Adams  and  Sumner:    Labour  Problems.    Macmillan;  1905. 
Commons  and  Andrews  :    Principles  of  Labour  Legislation.    Harpers ; 

1916. 
Walker:    The  Wages  Question.    New  York;  1876. 
Ryan  :    A  Living  Wage.    Macmillan ;  1906. 
Snowden  :    The  Living  Wage.    London ;  Hodder  &  Stoughton. 
O'Grady:    a  Legal  Minimum  Wage.    Washington;  1915. 
Broda:    La  Fixation  Legale  des  Salaires.    Paris;  1912. 
N.  Y.  Factory  Investigating  Commission.    Appendix  to  Vol.  III. 
Tawney  :     Minimum  Rates  in  the  Chain-Making  Industry.    London ; 
1914. 
Minimum  Rates  in  the  Tailoring  Industry.    London ;  1915. 

TuRMAN  :    Le  Catholicisme  Social.    Paris ;  1900. 
Pottier:    De  Jure  et  Justitia.    Liege;  1900. 
Polier  :    L'  Idee  du  Juste  Salaire.     Paris ;  1903. 

Menger  :    The  Right  to  the  Whole  Produce  of  Labour.    London ;  1899. 
Garriguet  :     Regime  du  Travail.    Paris ;  1908. 
Nearing  :    Reducing  the  Cost  of  Living.    Philadelphia ;  1914. 
Chapin  :    The  Standard  of  Living  in  New  York  City.    New  York ; 
1909. 
Also  the  works  on  co-operation  cited  in  connection  with  Section  II, 
and  those  of  Hobson,  Carver,  Nearing  and  Streightoff. 


CHAPTER  XXVI 

SUMMARY   AND    CONCLUSION 

Throughout  this  book  we  have  been  concerned  with  a 
twofold  problem:  to  apply  the  principles  of  justice  to  the 
workings  of  the  present  distributive  system,  and  to  point 
out  the  modifications  of  the  system  that  seemed  to  promise 
a  larger  measure  of  actual  justice.  The  mechanism  of 
distribution  was  described  in  the  introductory  chapter  as 
apportioning  the  national  product  among  the  four  classes 
that  contribute  the  necessary  factors  to  the  process  of  pro- 
duction, and  the  first  part  of  the  problem  was  stated  as 
that  of  ascertaining  the  size  of  the  share  which  ought  to 
go  to  each  of  these  classes. 

The  Landowner  and  Rent 

We  began  this  inquiry  with  the  landowner  and  his  share 
of  the  product,  i.e.,  rent.  We  found  that  private  owner- 
ship of  land  has  prevailed  throughout  the  world  with 
practical  universality  ever  since  men  began  to  till  the  soil 
in  settled  communities.  The  arguments  of  Henry  George 
against  the  justice  of  the  institution  are  invalid  because 
they  do  not  prove  that  labour  is  the  only  title  of  property, 
nor  that  men's  equal  rights  to  the  earth  are  incompatible 
with  private  landownership,  nor  that  the  so-called  social 
production  of  land  values  confers  upon  the  community  a 
right  to  rent.  Private  ownership  is  not  only  socially 
preferable  to  the  Socialist  and  the  Single  Tax  systems  of 
land  tenure,  but  it  is,  as  compared  with  Socialism  cer- 
tainly, and  as  compared  with  the  Single  Tax  probably, 
among  man's  natural  rights.     On  the  other  hand,  the  land- 

426 


SUMMARY  AND  CONCLUSION  427 

owner's  right  to  take  rent  is  no  stronger  than  the  capital- 
ist's right  to  take  interest;  and  in  any  case  it  is  inferior 
to  the  right  of  the  tenant  to  a  decent  livelihood,  and  of  the 
employe  to  a  living  wage. 

Nevertheless,  the  present  system  of  land  tenure  is  not 
perfect.  Its  principal  defects  are:  the  promotion  of  cer- 
tain monopolies,  as,  anthracite  coal,  steel,  natural  gas, 
petroleum,  water  power,  and  lumber;  the  diversion  of  ex- 
cessive gains  to  landowners,  as  indicated  by  the  recent 
great  increases  in  the  value  of  land,  and  the  very  large 
holdings  by  individuals  and  corporations;  and  the  exclu- 
sion of  large  masses  of  men  from  the  land  because  the 
owners  will  not  sell  it  at  its  present  economic  value.  The 
remedies  for  these  evils  fall  mainly  under  the  heads  of 
ownership  and  taxation.  All  mineral,  timber,  gas,  oil, 
grazing,  and  water-power  lands  that  are  now  publicly 
owned,  should  remain  the  property  of  the  states  and  the 
nation,  and  be  brought  into  use  through  a  system  of  leases 
to  private  individuals  and  corporations.  Cities  should 
purchase  land,  and  lease  it  for  long  periods  to  persons  who 
wish  to  erect  business  buildings  and  dwellings.  By  means 
of  taxation  the  State  might  appropriate  the  future  in- 
creases of  land  values,  subject  to  the  reimbursement  of 
private  owners  for  resulting  decreases  in  value;  and  it 
could  transfer  the  taxes  on  improvements  and  personal 
property  to  land,  provided  that  the  process  were  suffi- 
ciently gradual  to  prevent  any  substantial  decline  in  land 
values.  In  some  cases  the  State  might  hasten  the  disso- 
lution of  exceptionally  large  and  valuable  estates  through 
the  imposition  of  a  supertax. 

The  Capitalist  and  Interest 

The  Socialist  contention  that  the  labourer  has  a  right  to 
the  entire  product  of  industry,  and  therefore  that  the  cap- 
italist has  no  right  to  interest,  is  invalid  unless  the  former 
alleged  right  can  be  effectuated  in  a  reasonable  scheme  of 


428  DISTRIBUTIVE  JUSTICE 

distribution;  and  we  know  that  the  contemplated  Socialist 
scheme  is  impracticable.  Nevertheless,  the  refutation  of 
the  Socialist  position  does  not  automatically  prove  that 
the  capitalist  has  a  right  to  take  interest.  Of  the  titles 
ordinarily  alleged  in  support  of  such  a  right,  productivity 
and  service  are  inconclusive,  while  abstinence  is  valid  only 
in  the  case  of  those  capital  owners  to  whom  interest  was  a 
necessary  inducement  for  saving.  Since  it  is  uncertain 
whether  sufficient  capital  would  be  provided  without  inter- 
est, and  since  the  legal  suppression  of  interest  is  imprac- 
ticable, the  State  is  justified  in  permitting  the  practice  of 
taking  interest.  But  this  legal  permission  does  not  justify 
the  individual  interest-receiver.  His  main  and  sufficient 
justification  is  to  be  found  in  the  presumptive  title  which 
arises  out  of  possession,  in  the  absence  of  any  adverse 
claimant  with  a  stronger  title  to  this  particular  share  of 
the  product. 

The  only  available  methods  of  lessening  the  burden  of 
interest  are  a  reduction  in  the  rate,  and  a  wider  diffusion 
of  capital  through  co-operative  enterprise.  Of  these  the 
former  presents  no  definite  or  considerable  reasons  for 
hope,  either  through  the  rapid  increase  of  capital  or  the 
inevitable  extension  of  the  industrial  function  of  govern- 
ment The  second  proposal  contains  great  possibilities  of 
betterment  in  the  fields  of  banking,  agriculture,  stores,  and 
manufacture.  Through  co-operation  the  weaker  farmers, 
merchants,  and  consumers  can  do  business  and  obtain 
goods  at  lower  costs,  and  save  money  for  investment  with 
greater  facility,  while  the  labourers  can  slowly  but  surely 
become  capitalists  and  interest-receivers,  as  well  as  em- 
ployes and  wage-receivers. 

The  Business  Man  and  Profits 

Just  remuneration  for  the  active  agents  of  production, 
whether  they  be  directors  of  industry  or  employes,  depends 
fundamentally  upon  five  canons  of  distribution;  namely, 


SUMMARY   AND   CONCLUSION  429 

needs,  efforts  and  sacrifices,  productivity,  scarcity,  and 
human  welfare.  In  the  light  of  these  principles  it  is  evi- 
dent that  business  men  M^ho  use  fair  methods  in  competi- 
tive conditions,  have  a  right  to  all  the  profits  that  they 
can  obtain.  On  the  other  hand,  no  business  man  has  a 
strict  right  to  a  minimum  living  profit,  since  that  would 
imply  an  obligation  on  the  part  of  consumers  to  sup- 
port superfluous  and  inefficient  directors  of  industry. 
Those  who  possess  a  monopoly  of  their  products  or  com- 
modities have  no  right  to  more  than  the  prevailing  or 
competitive  rate  of  interest  on  their  capital,  though  they 
have  the  same  right  as  competitive  business  men  to  any 
surplus  gains  that  may  be  due  to  superior  efficiency.  The 
principal  unfair  methods  of  competition;  that  is,  discrirni- 
native  underselling,  exclusive-selling  contracts,  and  dis- 
crimination in  transportation,  are  all  unjust. 

The  remedies  for  unjust  profits  are  to  be  found  mainly 
in  the  action  of  government.  The  State  should  either  own 
and  operate  all  natural  monopolies,  or  so  regulate  their 
charges  that  the  owners  would  obtain  only  the  competitive 
rate  of  interest  on  the  actual  investment,  and  only  such 
surplus  gains  as  are  clearly  due  to  superior  efficiency.  It 
should  prevent  artificial  monopolies  from, practising  extor- 
tion toward  either  consumers  or  competitors.  Should  the 
method  of  dissolution  prove  inadequate  to  this  end,  the 
State  ought  to  fix  maximum  prices.  ,  Inasmuch  as  over- 
capitalisation has  frequently  enabled  monopolistic  concerns 
to  obtain  unjust  profits,  and  always  presents  a  strong 
temptation  in  this  direction,  it  should  be  legally  prohibited. 
A  considerable  part  of  the  excessive  profits  already  accu- 
mulated can  be  subjected  to  a  better  distribution  by  pro- 
gressive income  and  inheritance  taxes.  Finally,  the  pos- 
sessors of  large  fortunes  and  incomes  could  help  to  bring 
about  a  more  equitable  distribution  by  voluntarily  comply- 
ing with  the  Christian  duty  of  bestowing  their  superfluous 
goods  upon  needy  persons  and  objects. 


430  DISTRIBUTIVE  JUSTICE 

The  Labourer  and  Wages 

None  of  the  theories  of  fair  wages  that  have  been  exam- 
ined under  the  heads  of  "  the  prevaiHng  rate,"  "  exchange- 
equivalence,"  or  "  productivity  "  is  in  full  harmony  with 
the  principles  of  justice.  The  minimum  of  wage  justice 
can,  however,  be  described  with  sufficient  definiteness  and 
certainty.  The  adult  male  labourer  has  a  right  to  a  wage 
sufficient  to  provide  himself  and  family  with  a  decent  live- 
lihood, and  the  adult  female  has  a  right  to  remuneration 
that  will  enable  her  to  live  decently  as  a  self  supporting 
individual.  At  the  basis  of  this  right  are  three  ethical 
principles:  all  persons  are  equal  in  their  inherent  claims 
upon  the  bounty  of  nature;  this  general  right  of  access  to 
the  earth  becomes  concretely  valid  through  the  expenditure 
of  useful  labour;  and  those  persons  who  are  in  control  of 
the  goods  and  opportunities  of  the  earth  are  morally  bound 
to  permit  access  thereto  on  reasonable  terms  by  all  who 
are  willing  to  work.  In  the  case  of  the  labourer,  this 
right  of  reasonable  access  can  be  effectuated  only  through 
a  living  wage.  The  obligation  of  paying  this  wage  falls 
upon  the  employer  because  of  his  function  in  the  industrial 
organism.  And  the  labourer's  right  to  a  living  wage  is 
morally  superior  to  the  employer's  right  to  interest  on  his 
capital.  Labourers  who  put  forth  unusual  efforts  or 
make  unusual  sacrifices  have  a  right  to  a  proportionate 
excess  over  living  wages,  and  those  who  are  exceptionally 
productive  or  exceptionally  scarce  have  a  right  to  the  extra 
compensation  that  goes  to  them  under  the  operation  of 
competition.  Labourers  who  are  receiving  the  "  equi- 
table minimum  "  described  in  the  last  sentence  have  a  right 
to  still  higher  wages  at  the  expense  of  the  capitalist  and 
the  consumer,  if  they  can  secure  them  through  the  processes 
of  competition;  for  the  additional  amount  is  an  ethically 
unassigned  or  ownerless  property  which  may  be  taken  by 


SUMMARY   AND   CONCLUSION  43I 

either  labourer,  capitalist,  or  consumer,  provided  that 
there  is  no  artificial  limitation  of  supply. 

The  methods  of  increasing  wages  are  mainly  three:  a 
minimum  wage  by  law,  labour  unions,  and  co-operative  en- 
terprise. The  first  has  been  fairly  well  approved  by  ex- 
perience, and  is  in  no  wise  contrary  to  the  principles  of 
either  ethics,  politics,  or  economics.  The  second  has  like- 
wise been  vindicated  in  practice,  though  it  is  of  only  small 
efficacy  in  the  case  of  those  workers  who  are  receiving  less 
than  living  wages.  The  third  would  enable  labourers  to 
supplement  their  wage  incomes  by  interest  incomes,  and 
would  render  our  industrial  system  more  stable  by  giving 
the  workers  an  influential  voice  in  the  conditions  of  em- 
ployment, and  laying  the  foundation  of  that  contentment 
and  conservatism  which  arise  naturally  out  of  the  posses- 
sion of  property. 

As  a  matter  of  convenience,  the  foregoing  paragraphs 
may  be  further  summarised  in  the  following  abridgment: 
The  landowner  has  a  right  to  all  the  economic  rent,  modi- 
fied by  the  right  of  his  tenants  and  employes  to  a  decent 
livelihood,  and  by  the  right  of  the  State  to  levy  taxes 
which  do  not  substantially  lower  the  value  of  the  land. 
The  capitalist  has  a  right  to  the  prevailing  rate  of  inter- 
est, modified  by  the  right  of  his  employes  to  the  "  equi- 
table minimum  "  of  wages.  The  business  man  in  com- 
petitive conditions  has  a  right  to  all  the  profits  that  he  can 
obtain,  but  corporations  possessing  a  monopoly  have  no 
right  to  unusual  gains  except  those  due  to  unusual  effi- 
ciency. The  labourer  has  a  right  to  living  wages,  and  to 
as  much  more  as  he  can  get  by  competition  with  the  other 
agents  of  production  and  with  his  fellow  labourers. 

Concluding  Observations 

No  doubt  many  of  those  who  have  taken  up  this  volume 
with  the   expectation  of  finding  therein  a  satisfactory 


432  DISTRIBUTIVE   JUSTICE 

formula  of  distributive  justice,  and  who  have  patiently 
followed  the  discussion  to  the  end,  are  disappointed  and 
dissatisfied  at  the  final  conclusions.  Both  the  particular 
applications  of  the  rules  of  justice  and  the  proposals  for 
reform,  must  have  seemed  complex  and  indefinite.  They 
are  not  nearly  so  simple  and  definite  as  the  principles  of 
Socialism  or  the  Single  Tax.  And  yet,  there  is  no  escape 
from  these  limitations.  Neither  the  principles  of  indus- 
trial justice  nor  the  constitution  of  our  socio-economic 
system  is  simple.  Therefore,  it  is  impossible  to  give  our 
ethical  conclusions  anything  like  mathematical  accuracy. 
The  only  claim  that  is  made  for  the  discussion  is  that  the 
moral  judgments  are  fairly  reasonable,  and  the  proposed 
remedies  fairly  efficacious.  When  both  have  been  realised 
in  practice,  the  next  step  in  the  direction  of  wider  distribu- 
tive justice  will  be  much  clearer  than  it  is  to-day. 

Although  the  attainment  of  greater  justice  in  distribu- 
tion is  the  primary  and  most  urgent  need  of  our  time,  it  is 
not  the  only  one  that  is  of  great  importance.  No  con- 
ceivable method  of  distributing  the  present  national  prod- 
uct would  provide  every  family  with  the  means  of  sup- 
porting an  automobile,  or  any  equivalent  symbol  of  com- 
fort. Indeed,  there  are  indications  that  the  present 
amount  of  product  per  capita  cannot  long  be  maintained 
without  better  conservation  of  our  natural  resources,  the 
abandonment  of  our  national  habits  of  wastefulness,  more 
scientific  methods  of  soil  cultivation,  and  vastly  greater 
efficiency  on  the  part  of  both  capital  and  labour.  Nor  is 
this  all.  Neither  just  distribution,  nor  increased  produc- 
tion, nor  both  combined,  will  insure  a  stable  and  satisfac- 
tory social  order  without  a  considerable  change  in  human 
hearts  and  ideals.  The  rich  must  cease  to  put  their  faith 
in  material  things,  and  rise  to  a  simpler  and  saner  plane  i 
of  living;  the  middle  classes  and  the  poor  must  give  up] 
their  envy  and  snobbish  imitation  of  the  false  and  degrad- 
ing standards  of  the  opulent  classes;  and  all  must  learnj 


SUMMARY   AND   CONCLUSION  433 

the  elementary  lesson  that  the  path  to  achievements  worth 
while  leads  through  the  field  of  hard  and  honest  labour, 
not  of  lucky  "  deals  "  or  gouging  of  the  neighbour,  and 
that  the  only  life  worth  living  is  that  in  which  one's  cher- 
ished wants  are  few,  simple,  and  noble.  For  the  adoption 
and  pursuit  of  these  ideals  the  most  necessary  requisite  is 
a  revival  of  genuine  religion. 


INDEX 


Abstinence:  as  a  title  to  interest, 
182-186. 

Adams,  T.  S. :  301,  302. 

Adam  Smith:  331,  341. 

Agriculture:  co-operation  in,  217- 
220. 

Alaska :  leasing  system  in,  96. 

Altruism  :  efficacy  of  under  Social- 
ism, 165-167 ;  promoted  by  co- 
operation, 229. 

Ambrose,  Saint :  305. 

American  Sugar  Refining  Com- 
pany :  267,  272,  289. 

American  Tobacco  Company:  263, 
267,  288. 

Analogy :  economic,  as  justifying 
interest,  205,  206. 

Anthracite  coal:  a  monopoly,  7^, 
78,  95,  U2. 

Antoine,  Charles :  337-340. 

Antoninus,  Saint :  270. 

Aquinas,  Saint  Thomas :  63,  64, 
175,  181,  208,  304,  306,  307,  333. 

Arbitration :  failure  of,  324. 

Ashley,  W.  J. :  9. 

Astor  estate  :  88,  89. 

Augustine,  Saint :  305. 

Australasia :  special  land  taxes  in, 
118-120,  131;  minimum  wage 
in,  401,  402. 

Authorities :  Catholic  and  Protest- 
ant, on  living  wage,  277,  278. 

Basil,  Saint:  305. 

Bible,  the :  on  the  duty  of  benevo- 
lence, 303,  304,  316,  317. 

Brandeis,  Louis  D. :  265,  275. 

Business  man :  functions  and  re- 
wards of,  237-239,  255-258 ;  no 
right  of  to  minimum  profits, 


258-260,  362,  363 ;  the  superflu- 
ous, 260,  261. 

Canada:  special  land  taxes  in,  117- 
120, 

Canonist:  doctrine  of  wage  justice, 
333-336- 

Canons  of  distributive  justice: 
243-253- 

Capital:  meaning  of,  137,  138; 
power  of  to  create  value,  146- 
148;  Catholic  teaching  con- 
cerning interest  on,  175-177; 
titles  of  to  interest,  177-186; 
value  of  in  a  no-interest 
regime,  188-190;  need  for  a 
wider  distribution  of,  213, 
214;  need  for  ownership  of  by 
labour,  214,  229,  230. 

Capitalists:  two  kinds  of,  138;  ex- 
propriation of,  154-158;  right 
of  to  take  interest,  201-209; 
claims  of,  versus  claims  of  la- 
bourers, 367-369,  390-393,  396. 

Carnegie,  Andrew :  300. 

Carver,  T.  N. :  351-355- 

Catholic  Church :  attitude  of 
toward  interest,  172-176. 

Child  workers:  right  of  to  a  liv- 
ing wage,  373- 

Christian  conception  of  welfare: 
316-318. 

Clark,  J.  B. :  271,  347-351- 

Compensation :  to  landowners,  34- 
39;  to  capitalists  under  So- 
cialism,   154-158. 

Competition :  alleged  failure  of, 
275-278. 

Confiscation  :  of  land  values  under 
the  Single  Tax,  34-39 ;  of  cap- 


43S 


436 


INDEX 


ital  under  Socialism,  154-158; 
of  wealth  by  taxation,  297, 
298. 

Constitutionality  of  minimum 
wage  laws:  405-407. 

Consumer:  injury  to  through 
stockwatering,  282-288;  obli- 
gations of  to  business  man, 
258,  259,  362,  363;  versus  la- 
bourer, 393-398. 

Contract:  onerous,  326;  free,  as  a 
rule  of  wage  justice,  328-330, 
370-372. 

Co-operation:  as  a  partial  solvent 
of  capitalism,  210-233 ;  essence 
and  kinds  of,  214,  215;  in 
banking,  216,  217;  in  agricul- 
ture, 217-220;  in  stores,  220- 
222;  in  production,  222-228; 
effect   of    on    social    stability, 

229,  230 ;  as  compared  with  in- 
dividualism    and     Socialism, 

230,  231 ;  province  and  limita- 
tions of,  231-233;  bearing  of 
on  the  superfluous  business 
man,  260,  261 ;  and  on  the  la- 
bouring classes,  423-425. 

Copartnership:  223,  224. 
Corporation :  profits  of  a,  241,  242, 

257.  258,  262,  389. 
Cost  of  living :  378,  379-     . 
Cost  of  production  :  of  capital,  188, 

Credit  societies:  co-operative,  216, 
217. 

Defects  of  our  land  system:  74- 
93;  monopoly,  75-^5  exces- 
sive  gains,   80-89;   exclusion, 

90-93- 

Devas,  Charles:  184. 

Disagreeable  tasks :  384,  385. 

Dixon,  F.  H.:  323. 

Discriminative  transportation  con- 
tracts:  272,  273. 

Discriminative  underselling:   267- 

270. 
Distribution        of        superfluous 
wealth:  303-319. 


Distributive  justice:  canons  of, 
243-253,  381,  382. 

Earth:   right  of   access  to,   358- 

Economic  determinism:  inconsist- 
ent with  ethical  judgments, 
20,  145,  146,  343,  344. 

Efficiency:  monopolistic,  265-267, 
275-277,  279 ;  exceptional,  388- 

Efforts:   exceptional,  as  claim  to 

rewards,  382-383. 
Efforts  and  sacrifices:  as  canons 

of  distribution,  245-247. 
Ely,  R.  T.:330.         ^    , 
Employer:    gains   of    from   wage 

contract,  327,  328;  obligation 

of  to  pay  a  living  wage,  365- 

Engels,  F. :  20. 

Ensor,  E.  K. :  50. 

Equal  gains:  as  a  canon  of  wage 
justice,  326-328. 

Equality:  as  a  canon  of  justice, 
243,  244;  of  men's  claims  to 
the  bounty  of  nature,  358,  359 ; 
of  rights  to  a  decent  liveli- 
hood, 360-363. 

"  Equitable  minimum  " :  of  wages, 
388,  390,  392,  393,  395,  397,  398, 
399,  417-  ,       ^ 

Equity :  meaning  of,  250. 

Exchange-equivalence :  theories 
of,  326-340;  equal  gains,  326- 
328;  free  contract,  328-330; 
market  value,  2>Z^^2,2\  me- 
diaeval, 332-336;  modern,  336- 
340. 

Exclusion  from  the  land  :  90-93- 

Exclusive-sales     contracts :     270- 

2T2. 

Expropriation :   of  capitalists  un- 
der Socialism,  154-158. 
Extrinsic  titles:  of  interest,  172. 

Family  living  wage :  373-376. 
Fathers  of  the  Church :  on  private 


INDEX 


437 


property  in  land,  62;  on  duty 
of  beneficence,  305,  306. 

Fay,  C.  R. :  214,  221,  227. 

Fisher,  Irving:  196. 

Fortunes :  legal  limitation  of,  291- 
302;  directly,  292-295;  by  tax- 
ation, 296-302. 

France :  co-operative  production 
in,  223. 

Fustel  de  Coulanges:  9. 

Gains :  excessive  from  land,  80- 
89;  from  monopolies,  263-265. 

Germany:  co-operation  in,  216. 

Giflfen,  Sir  Robert:  189. 

Godwin,  W. :  341. 

Government  ownership :  93-95 ; 
limitations  of,  163-165;  and 
rate  of  interest,  212. 

Great  Britain :  co-operation  in, 
220-222 ;  income  taxes  in,  299- 
300;  minimum  wage  in,  401, 
402. 

Haines,  H.  T. :  405. 

Hammond,  M.  B. :  402. 

Henry  George :  on  primitive  com- 
mon ownership,  17;  on  first 
occupancy,  21-24;  on  title  of 
labour,  24-29;  on  natural  right 
to  land,  30-39;  on  right  of 
community  to  land  values  and 
rent,  39-47;  on  Single  Tax, 
51,  52. 

Hillquit,  Morris:  159. 

Hobson,  J.  A.:  418. 

Howe,  F.  C.:  76-78. 

Hyndman  and  Morris :  20. 

Human  welfare :  the  test  of  prop- 
erty rights  in  land,  36-38;  and 
of  a  system  of  land  tenure, 
74;  and  of  increment  taxes, 
109-1 1 1 ;  and  of  titles  of  prop- 
erty, 150,  151,  244,  293-295;  as 
a  canon  of  distributive  justice, 
252,  253;  as  justifying  profits, 
256,  257,  389;  as  justifying 
higher  than  living  wages,  386. 


Income:  distribution  of  national, 
81-83. 

Incomes:  injustice  of  equal,  244; 
progressive  taxation  of,  297- 
302. 

Increment  taxes:  102-117. 

Inefficiency:  of  leadership  and  la- 
bour under  Socialism,  158-168. 

Inheritance:  legal  limitation  of, 
293-295 ;  progressive  taxation 
of,  296-302. 

Interest:  nature  of,  137-140; 
rate  of,  141-144;  alleged  in- 
trinsic justifications  of,  171- 
186;  attitude  of  Church 
toward,  172-176;  extrinsic  ti- 
tles of,  172;  and  the  title  of 
productivity,  176-181 ;  and  the 
title  of  service,  181,  182;  and 
the  title  of  abstmence,  182- 
186;  social  and  presumptive 
justifications  of,  187-209; 
necessity  of,  191-199;  civil 
authorization,  201-204 ;  how 
justified,  204-209 ;  a  "  work- 
less  "  income,  210;  possibility 
of  reducing  rate,  211-213;  dis- 
tinguished from  profits,  238,' 
239;  versus  wages,  390-393. 

Investor:  the  "innocent,"  286,  287.' 

Ireland :  reduction  of  rents  in,  69- 
71 ;  compulsory  sale  of  land 
in,  no;  co-operation  in,  217- 
219. 

Italy :  co-operation  in,  223. 

Justice :  dependence  of  on  charity, 
318;  not  found  in  prevailing- 
rate  theory,  325;  nor  in  ex- 
change-equivalence theories, 
326-340;  nor  in  productivity 
theories,  340-35S ;  and  the 
wage  contract,  370-372;  and 
the  legal  minimum  wage,  407. 

Kautsky,  Karl :  153. 
King,  W.  I. :  82,  83,  122,  123,  155, 
240,  310,  414. 


438 


INDEX 


Labour:  as  a  title  to  land,  24-29; 
and  to  products,  45;  and  to 
the  entire  product  of  industry, 
145-152;  341-347;  productiv- 
ity of,  178,  179;  inefficiency  of 
under  Socialism,  162-167 ; 
mediaeval  measure  of  cost  of, 
336,  337;  claims  of  different 
groups  of,  381-387;  legislative 
proposals  for,  416,  417. 

Labour  unions :  efficacy  and  limit- 
ations of,  417-420;  and  legis- 
lation, 420-423. 

Labourer,  the :  claim  of  to  rent, 
71-73 ;  right  of  to  his  product, 
25,  26,  28,  43,  45,  149,  150,  179, 
180;  gains  of  from  wage  con- 
tract, 327,  328;  right  of  to  a 
living  wage,  363-369,  373,  373 ; 
versus  the  capitalist,  390-393, 
396;  versus  the  consumer, 
393-398;  and  co-operative  en- 
terprise, 423-425. 

Land:  distribution  of,  16,  17,  87- 
89;  large  holdings  of,  89,  90; 
accessibility  to,  91-95 ;  the 
leasing  system,  95-97;  public 
ownership  of,  98-100. 

Landowner:  right  of  to  rent,  67- 
73;  his  share  of  product,  80- 

89- 

Landownership :  in  history,  8-18; 
two  theories  of,  8,  9;  in  pre- 
agricultural  conditions,  10-12; 
origin  of  private,  12-14;  prev- 
alence and  benefits  of,  15-18; 
arguments  against  private,  19- 
47,  by  Socialists,  19-21,  by 
Henry  George,  21-47;  private, 
the  best  system  of  tenure, 
48-55;  four  elements  of,  48; 
a  natural  right,  55-56.  See 
Henry  George,  Occupancy, 
Labour,  Right,  Compensation, 
Confiscation,  Defects,  Rent. 

Land  System  :  defects  of  the  exist- 
ing, 74-93. 

Land  values :  how  created  by  the 
community,  40-47;  increase  of, 


83-86;    taxation    of,    1 17-130. 

Langenstein :  335. 

Lassalle,  F. :  183. 

Large  estates :  special  taxation  of, 
130-132. 

Leadership :  industrial,  under  So- 
cialism,  158-167. 

Leasing  system:  95-97. 

Legislation:  for  labour,  120-123, 
416. 

Liberty :  under  Socialism,  168-170. 

Liebknecht,  W. :  152. 

Life :  right  to,  57 ;  true  conception 
of,  317. 

Limitation  of  fortunes:  291-302; 
directly,  292-295;  by  taxation, 
296-302. 

Livelihood,  decent:  360-363;  the 
labourer's  right  to,  363-365; 
the  employer's,  366. 

Living  wage:  the  minimum  of 
wage  justice,  356-380;  three 
fundamental  principles,  358- 
360;  and  a  decent  liveli- 
hood, 360-363;  right  of  la- 
bourer to,  363-369;  obligation 
of  employer  to  pay,  365-372; 
for  a  family,  373-376;  and 
social  welfare,  376,  377;  au- 
thorities for,  377,  378;  money 
measure  of,  378-380;  versus 
other  titles  of  reward,  381, 
382,  386. 

Loan  capitalist:  and  the  claims  of 
the  labourer,  366,  367,  390,  391. 

Loans :  attitude  of  Church  toward 
interest  on,  172-174;  and  pro- 
ductive capital,  174,  175. 

Maine,  Sir  Henry:  17. 

Market  value:  and  wage  justice, 
330-332,  370,  375- 

Marriage:  right  to,  57,  58;  and 
reasonable  life,  374. 

Marx,  Karl:  145-148,  342,  343,  374. 

Materialism :  in  current  concep- 
tion of  welfare,  314-318. 

Meade,  E.  S. :  265,  266. 

Menger,  A.:  342. 


INDEX 


439 


Middle  Ages,  doctrines  of :  on  in- 
terest, 172,  175,  176,  201;  on 
titles  of  gain,  175;  on  wage 
justice,  332-336. 

Minimum:  of  wage  justice,  356- 
380. 

Minimum  profits:  question  of 
right  to,  258-260. 

Minimum  wage :  353-355.  400-423 ; 
in  operation,  400-405;  ethical 
and  political  aspects  of,  407, 
408;  economic  aspect  of,  408- 
416;  opinions  of  economists 
on,  412-416,  420-423. 

Modern :  version  of  exchange- 
equivalence,  336-340. 

Monopoly :  in  relation  to  land,  75- 
80;  moral  aspect  of,  262-278; 
excessive  gains  of,  263-265 ; 
efficiency  of,  265-267,  275-277 ; 
discriminative  underselling  by, 
267-270;  favors  to  by  rail- 
roads, 262,  273;  natural,  273- 
275 ;  suppression  versus  regu- 
lation of,  275-278;  by  labour, 
390,  397- 

Natural  monopolies :  273-275. 

Natural  rights :  57-59.    See  Rights. 

Nearing,  Scott:  83-85;  154,  210, 
footnote. 

Needs :  as  a  canon  of  justice,  244, 
246,  356-358;  classification  of, 
308,  309;  exaggerated  con- 
ception of,  314-318;  a  standard 
of  wage  justice  in  Middle 
Ages,  335,  336. 

Occupancy,  first :  as  a  title  to  land, 
21-24;  as  exemplified  in  in- 
crement taxes,  109. 

Occupation :  question  of  right  to 
a  livelihood  from  a  present, 
362,  363. 

Original  titles:  See  Occupancy, 
Labour. 

Ownership:  titles  of  determined 
by  reasonable  distribution,  150, 
151- 


Overcapitalization :  279-290.  See 
Stockwatering. 

Perkins,  G.  W.:  276. 

Personality:  as  basis  of  industrial 
rights,  358-371,  374- 

Pesch,  H. :  215. 

Pope  Benedict  XIV:  173. 
Clement  IV:  23. 
Gregory  the  Great:  306. 
Innocent  XI:  316. 
Leo  XIII:  64.-66,  306,  309,  377. 
Sixtus  V:  176. 

Population:  excessive  increase  of 
urban,  86. 

Possession:  as  a  partial  justifica- 
tion of  interest:  205,  206. 

Possessors:  obligation  of  to  non- 
possessors,  359,  360. 

Presumption :  as  a  partial  justifica- 
tion of  interest,  205 ;  and  the 
canon  of  productivity,  248. 

Prevailing  rate  theory:  of  wage 
justice,  323-325. 

Prices :  test  of  extortionate,  269, 
270;  legalized  agreements  fix- 
ing, 277,  278;   versus   wages, 
.  393-399. 

Principles:  three  fundamental  to 
living  wage  doctrine,  358-360. 

Product:  distribution  of  national, 
181-183.  See  Labour,  Labour- 
er, Right. 

Production  :  of  land  values  by  the 
community,  39-47 ;  co-opera- 
tion in,  222-228. 

Productivity:  as  a  title  to  the 
product,  25,  26,  28,  43,  45,  149, 
150,  179;  as  a  title  to  interest, 
172,  173,  176-181,  204,  205 ;  of 
labour  and  capital,  178-180; 
as  a  canon  of  distribution, 
246-249,  350,  351;  as  justify- 
ing large  profits,  255-258,  262, 
388,  389;  as  a  title  to  wages, 
341-355,  385;  Clark's  theory 
of,  347-351 ;  Carver's  theory 
of,  351-355. 

Profits:    nature    of,    237-242;    as 


440 


INDEX 


compared  with  interest  and 
rent,  139,  140,  238,  239; 
amount  of,  239,  240;  in  a  cor- 
poration, 241,  242;  in  condi- 
tions of  competition,  254-261  ; 
indefinitely  large,  255-258 ; 
minimum,  258-^60;  surplus 
and  excessive,  263-265 ;  in 
natural  monopolies,  273,  274; 
versus  wages,  388-390. 

"  Progress  and  Poverty  " :  21,  22, 
24,  25,  30,  34,  39,  51,  52. 

Proudhon:  342. 

Public  honour:  efficacy  of  under 
Socialism :    165-167. 

Pullman  Company :  289. 


Reform :  versus  revolution,  94. 

Rent:  economic,  3-7;  commercial, 
5;  how  produced  by  society, 
39-47;  right  of  landowner  to, 
67-75 ;  right  of  tenant  and 
labourer  to,  69-73,  396;  in- 
crease and  amount  of,  80-87; 
distribution  of,  87-89;  in 
United  States,  122. 

Rent  charges :  attitude  of  theolog- 
ians toward,  175,  176. 

"  Res  f  ructificat  domina  " ;  limita- 
tions of  this  formula,  60,  61, 
104,  105,  III,  180,  345. 

Revolution:  versus  reform,  94. 

Riches :  from  land,  88,  89. 

Right:  of  the  individual  to  land, 
30-39;  of  the  community  to 
land  values  and  rent,  39-47 ; 
of  the  producer  to  his  product, 
see  productivity;  of  private 
landownership,  56-66;  to  take 
rent,  67-73 ;  oi  access  to  the 
earth,  358-360;  to  a  decent 
livelihood,  360-363;  to  a  liv- 
ing  wage,   363-369,   372,    376. 

Rights :  three  principal  kinds  of 
natural,  57-59 ;  of  property,  as 
created  by  the  State,  202. 

Rodbertus,  K. :  342. 

Roman  Congregations:  on  lawful- 


ness  of   interest   taking,    173, 
174. 


Saint-Simon:  342. 

Sacrifice :  principle  of  in  taxation, 
131.  297;  as  a  title  to  interest, 
185^-188;  as  a  title  of  reward, 

383-385. 

Savers  :  three  kinds  of,  183-185. 

Scarcity:  effect  of  on  rewards  of 
productive  agents,  80;  as  a 
canon  of  distributive  justice, 
250,  251 ;  as  justifying  very 
large  profits,  and  more  than 
a  living  wage,  255-258. 

Schmoller:  253. 

Schoolmen :  doctrines  of  on  wage 
justice,  333-336. 

Seligrnan,  E.  R.  A.:  loi,  296,  297. 

Service:  as  a  title  to  interest,  181, 
182,  204,  205, 

Shifting:  of  land  taxes,  102,  103. 

Sidgwick,  H. :  329. 

Single  Tax:  injustice  of,  33-39, 
100;  proposals  and  defects  of, 
51,  54,  108. 

Skelton,  O.  D.:  165. 

Small,  A.  W. :  171. 

Social  benefits :  of  special  taxes  on 
land,  127-130. 

Socialism  :  as  regards  land,  49,  51 ; 
not  inevitable,  153 ;  expropria- 
tion of  capitalists  by.  154-158; 
inefficiency  of,  158-168 ;  hostile 
to  individual  liberty,  168-170; 
not  co-operation,  230,  231. 

Socialists :  on  private  landowner- 
ship,  19-21 ;  on  interest,  value, 
and  labour,  145-148;  on  the 
collectivist  State,  152,  153;  on 
morality  of  profits,  254;  on 
wage  justice,  341-347;  on  the 
principle  of  needs,  356. 

Socialist  party:  of  the  United 
States,  on  landownership,  51. 

Spargo,  John:  51. 

Specific  productivity:  as  a  measure 
of  wage  justice,  347-351- 


INDEX 


441 


Speculation :  effect  of  on  land  val- 
ues, 92,  93,  103. 

Spencer,  Herbert:  23. 

Standard  Oil  Company:  76,  263, 
267. 

State,  the:  should  permit  interest, 
199-201 ;  power  of  to  create 
property  rights,  202-204;  not 
obliged  to  guarantee  living 
profits,  259;  fixing  of  maxi- 
mum prices  by,  275-278;  and 
the  "  innocent "  investor,  286, 
287;  and  the  prevention  of 
stockwatering,  289,  290;  and 
the  limitation  of  fortunes,  291- 
302;  and  payment  of  living 
wages,  365 ;  and  minimum 
wage,  407,  408,  420-423;  and 
other  labour   legislation,  416, 

417- 

Stockholders:  claim  of  to  surplus 
gains,  257,  258,  262;  as  re- 
lated to  stockwatering,  279- 
281,  285. 

Stockwatering:  moral  aspect  of, 
279^-290;  definition  of,  280;  in- 
jurious effects  of,  281-286; 
and  the  "  innocent "  investor, 
286,  287;  magnitude  of,  288, 
289;  prevention  of,  289,  290. 

Stores :  co-operation  in,  220-222. 

Superfluous  wealth :  duty  of  dis- 
tributing, 303-319;  kinds  of, 
308,  309 ;  a  false  conception 
of,  314-316;  true  conception 
of.  318,  319.    See  Wealth. 

Supertax :  on  large  landed  estates, 
130-132. 

Supply  and  demand:  as  determin- 
ing rent,  80;  as  determining 
interest,  143,  144. 

Taussig,  F.  W. :  198,  214,  282,  289, 
290;  on  minimum  wage,  412- 
416. 

Tawney,  R.  H. :  421. 

Taxation:  as  a  social  instrument, 
loi,  102;  of  increases  in  land 
value,  102-117;  faculty  theory 


of,  107,  108;  progressive,  as  a 
method  of  limiting  fortunes, 
296-302. 

Taxes:  shifting  of  to  land,  117- 
130;  social  benefits  of,  127-130, 

Tenant:  claim  of  to  rent,  69-71. 

Theologians:  on  private  landown- 
ership,  62-64;  on  interest, 
172-176,  202-204;  on  civil 
creation  of  property  rights, 
202;  on  duty  of  benevolent 
distribution,  308,  309. 

Thompson,  W. :  341. 

Undertaker :  See  Business  man. 

United  States :  special  land  taxes 
in,  119;  co-operation  in,  218, 
263 ;  minimum  wage  in,  401, 
403-407. 

United  States  Commissioner  of 
Corporations,  reports  of:  on 
Standard  Oil  Company,  76, 
263,  267,  268,  272;  on  Steel 
Corporation,  79,  89,  263,  267, 
285;  on  water  power  owner- 
ship, 79,  95 ;  on  the  lumber 
industry,  85,  89,  94,  132;  on 
American  Tobacco  Company, 
263,  267,  288;  on  American 
Sugar  Refining  Company,  267, 
272,  289. 

United  States  Shipbuilding  Com- 
pany: ^8,  289. 

United  States  Steel  Corporation: 
79,  89,  267,  285,  289. 

Use:  right,  as  a  confirmatory  jus- 
tification of  interest  taking, 
206-208. 

Value:  Marxian  theory  of,  145- 
148,  333,  343,  344;  relation  of 
to  wage  justice,  330-340;  and 
to  a  living  wage,  370,  375. 

Van  Hise,  C  R.:  266,  267,  277, 
278,  288. 

Wage  justice:  unacceptable  theo- 
ries of,  323-355;  prevailing 
rate     theory,     323-325;     ex- 


442 


INDEX 


change  equivalence  theory,  326- 
340;  productivity  theories,  341- 
355  ;  the  minimum  of,  356-380 ; 
problem  of  complete,  381- 
399;  claims  of  different  labour 
groups,  381-387;  wages  versus 
profits,  388-390;  wages  versus 
interest,  390-393 ;  wages  ver- 
sus prices,  393-399- 

Wages:  versus  profits,  388-390; 
"  equitable  minimum  "  of,  388 ; 
versus  interest,  390-393 ;  ver- 
sus prices,  393-399;  methods 
of  increasing,  400-425;  legal 
minimum,  400-416;  other  leg- 
islation for,  416,  417;  labour 
unions,  417-423;  co-operative 
enterprise,  423-425. 

Wagner,  A. :  342. 

Watered  stock:  279-290.  See 
Stockwatering. 


Water  power:  in  the  United 
States,  79,  95. 

Wealth,  superfluous :  duty  of  dis- 
tributing, 303-319;  as  regards 
a  part,  303-307  ;  as  regards  the 
whole,  308-314;  a  duty  of 
charity  or  of  justice,  305-307; 
the  supply  of  capital  and  busi- 
ness ability,  311-313;  false 
and  true  conceptions  of,  314- 
316. 

Welfare :  a  false  conception  of, 
314-316;  true  conception  of, 
316-318;  social,  demands  a 
living  wage  for  all,  376,  m. 
See  Human  welfare. 

Whittaker,  Sir  Thomas :  10,  14,  28. 

Wicker,  G.  R. :  350,  351. 

Williams,  A.:  232. 

Wolman,  L. :  417,  418. 

Women :  right  of  to  a  living  wage, 
Z7Z' 


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condensed  table  of  contents :  Introduction;  Book  I,  The  Fundamentals  in  the 
Existing  Socio-Economic  Order  Treated  from  the  Standpoint  of  Distribution ; 
Part  I,  Property,  Public  and  Private :  I,  Property,  Public  and  Private,  The  First 
Fundamental  Institution  in  the  Distribution  of  Wealth;  II,  Illustrations  Show- 
ing the  Importance  of  Property  in  Wealth  Distribution;  III,  Property  Defined 
and  Described;  IV,  Property,  Possession,  Estate,  Resources;  V,  The  Attribute 
and  Characteristic  of  Property;  VI,  The  Social  Theory  of  Private  Property; 
VII,  Property  and  the  Police  Power;  VIII,  What  May  I  Own?  IX,  The  Con- 
servative Nature  of  the  Social  Theory  of  Property;  X,  XI,  A  Discussion  of  the 
Kinds  of  Property;  XII,  The  General  Grounds  for  the  Maintenance  of  Private 
Property;  XIII,  A  Critical  Examination  of  the  General  Grounds  for  the  Main- 
tenance of  Private  Property;  XIV,  XV,  XVI,  XVII,  XVIII,  XIX,  The  Present 
and  Future  Development  of  Private  Property;  XX,  The  Transformation  of  Pub- 
lic Property  into  Private  Property  and  of  Private  Property  into  Public  Property; 

XXI,  The  Management  of  Public  Property  with  Reference  to  Distribution; 

XXII,  Theories  of  the  Origin  of  Private  Property;  Part  II,  Contract  and  Its 
Conditions :  I,  Introductory  Observations;  II,  Contract  Defined  and  Described; 
III,  The  Economic  Significance  of  Contract;  IV,  Contract  and  Individualism; 

V,  Criticism  of  the  Individualistic  Theory  of  Contract  and  the  Social  Theory; 

VI,  Contracts  for  Personal  Services;  VII,  Class  Legislation;  VIII,  Facts  as  to 
Impairment  of  Liberty;  IX,  The  Courts  and  Constitutions;  X,  Concluding 
Observations;  Appendix  I,  Part  III,  Vested  Interests;  Appendix  II,  Part  IV, 
Personal  Conditions;  Appendix  III,  Production,  Present  and  Future,  by  W.  I. 
King,  Ph.D.,  Instructor  in  Statistics,  University  of  Wisconsin;  Appendix  IV, 
List  of  Cases  Illustrating  the  Attitude  of  the  Courts  Toward  Property  and 
Contract  Rights  and  the  Consequent  Evolution  of  These  Rights,  by  Samuel  P. 
Orth,  Ph.D.,  Professor  of  Political  Science,  Cornell  University. 


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Publishers  64-^6  Fifth  Avenue  New  York 


Principles  of  Economics 


By  F.    W.    TAUSSIG 
Henry  Lee  Professor  of  Economics  in  Harvard  University 

New  edition.     Cloth,  8vo,  2  vols.,  each  $  2.00 
Volume  I,  547  pages  Volume  II,  573  pages 

The  present  edition  of  Professor  Taussig's  standard  work  em- 
bodies many  changes  throughout  the  text,  thus  bringing  his  work 
abreast  of  the  most  recent  developments.  The  chapter  on  banking 
in  the  United  States  has  been  entirely  re-written ;  as  it  now  stands, 
it  includes  a  description  of  the  Federal  Reserve  Bank  system  and  a 
consideration  of  the  principles  underlying  the  new  legislation.  The 
chapter  on  trusts  and  combinations  has  been  largely  re-written,  with 
reference  to  the  laws  enacted  in  1914.  Considerable  addition  and 
revision  has  been  made  in  the  chapter  on  workmen's  insurance, 
calling  attention  to  the  noteworthy  steps  taken  of  late  years  in  Eng- 
land and  the  United  States.  The  chapters  on  taxation  and  espe- 
cially on  income  taxes,  and  on  some  other  topics,  have  been  sim- 
ilarly brought  to  date. 

A  remarkable  tribute  to  the  merit  of  this  book  is  that  while  it  was 
not  intended  primarily  as  a  class  text,  it  has  been  adopted  for  ex- 
clusive use  as  a  text  in  many  of  the  colleges  and  universities,  both 
large  and  small.  Experience  has  shown  conclusively  that  the  book's 
clarity  of  expression  and  freedom  from  the  usual  technical  treatment 
of  the  subject  has  made  it  an  especially  suitable  text  for  all  colleges. 
For  the  smaller  institutions,  the  book  has  the  additional  advantage 
of  containing  all  the  necessary  material  required  in  the  usual  course 
in  economics,  and  thus  avoids  the  extra  expense  and  trouble  of  using 
several  other  books  to  supplement  the  basic  text.  In  fact,  the  value 
and  the  extended  use  of  this  work  as  a  comprehensive,  untechnical 
treatment  of  the  subject,  have  led  many  eminent  economists  to  re- 
gard it  as  the  most  notable  contribution  to  the  subject  of  economics 
since  the  time  of  John  Stuart  Mill. 


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0 


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from  which  it  was  borrowpri    ' 


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